Causal relationship between Foreign Direct Investment and Economic Growth in Turkey

Abstract: Although there is a considerable evidence on the link between Foreign Direct Investment (FDI) and economic growth in developing countries, the causal relationship of these two variables still remains an important question. This study attempts to examine the possible causal relationship between FDI and economic growth in Turkey, during the period 1992 (Quarter 2) – 2006 (Quarter 3). We employed the Johansen Cointegration and Granger Causality tests for detecting the long run or short run causality. Our results showed that there is no long run relationship between the variables, which led us to search the causality in the short run. However we couldn’t find any evidence for a causality running from FDI to economic growth or economic growth to FDI in Turkey.