THE RELATION BETWEENFOREIGN DIRECT INVESTMENT AND ECONOMIC GROWTH IN TURKEY: COINTEGRATION AND CAUSALITY ANALYSIS

The relationship between foreign direct investment and economic growth in Turkey is investigated in the period of 1974-2016, by using time series analysis. Foreign Direct Investment (FDI) and Gross Domestic Product (GDP) which represents economic growth variables in terms of US Dollar, were taken from World Bank Databank and the logarithms of these series were analyzed. Firstly Augmented Dickey Fuller (ADF) and Phillips Perron (PP) unit root tests were used to test the stability of the series and series were found to be stationary in the first differences. The Engle Granger Cointegration test was conducted to determine the existence of the long run relationship between the foreign direct investment and economic growth which are stationary at the same level. After finding the long run relationship, the error correction model was established and the extent of deviation from last year was determined by the coefficient of error terms. The coefficient of error terms was statistically significant and negative indicating that it is moving back to the equilibrium in the case of a deviation. In order to see the direction of the relationship between the series, Granger Causality analysis was made and no causality relationship was found