Effects of Foreign Direct Investment Inflows and Domestic Investment on Economic Growth: Evidence from Turkey

Abstract

Foreign direct investment flows have increased worldwide over the past three decades in conjunction with financial globalization and thus many studies have been conducted to examine possible effects of foreign direct investment inflows on economic growth. This study investigates the relationship between economic growth and foreign direct investment inflows, domestic investment in Turkey during the period 1980–2012 by using co-integration test and vector error correction model based on autoregressive distributed lag bound test approach. We found that there was a long run relationship among the economic growth, foreign direct investment inflows and domestic investment. On the other hand our findings demonstrated that foreign direct investment inflows affected economic growth negatively in the short and long run, while gross domestic investments affected economic growth positively in the short and long run.