The causal relationship between foreign direct investments, Trade openness and economic growth in Turkey

Abstract

Turkey adopted a policy of openness with the decisions of January 24, 1980. The openness policy implemented by Turkey has significantly increased the ability of the Turkish economy to attract foreign capital, with the effect of increasing international capital movements.The main objective of this study was to examine the impact of foreign direct investments and trade openness on the economic growth of the Turkish economy. Data from the period 1980-2022 was used for this purpose. In the study, the relationship between variables was investigated using Johansen cointegration test and Granger causality test. Johansen cointegration test results show that there is a cointegration relationship between the variables and the series move together in the long run. Granger causality test results show that there is a one-way causality relationship between economic growth to foreign direct investments and openness. It has been determined that there is a unidirectional Granger causality from trade openness to foreign direct investments. Foreign trade and financialisation movements, which have sped up since the 1980s, have significantly affected the growth levels of countries. Countries that adopted an import substitution approach, such as Turkey, abandoned this approach and determined outward-open growth strategies, leading to their classification in the global economy according to their foreign direct investments and openness levels.