FDI, Trade and Growth in Turkey : Evidence from ARDL Bounds Testing Approach
Despite the increasing empirical literature on foreign direct investment (FDI)-led growth, export-led growth (ELG) and import-led growth (ILG) hypotheses, this study investigates the validity of the FDI-export-growth and FDI-import-growth hypotheses in Turkey by using quarterly time series data for 1998:1-2009:1 period. To examine these linkages, we use the two-step procedure from the Engle and Granger model: In the first step, we define the order of integration in series and explore the long run relationships among the variables by using four unit root tests and autoregressive distributed lag (ARDL) bounds testing approach of cointegration test, respectively. In the second step, we test causal relationships by using the error-correction based causality models. The ARDL bounds test reveals that there is an evidence of a long-run relationship between the FDI, import (IM) and real gross domestic product (GDP), but no evidence of a long-run relationship between the FDI, export (EX) and GDP in Turkey. According to the causality test results for GDP-IM-FDI equation, there is evidence of two-way (bidirectional) causality between GDP and IM, evidence of one-way (unidirectional) causality from FDI to GDP and evidence of one-way Granger causality from FDI to IM. The existence of unidirectional causal links suggests that FDI strategies should be designed to promote economic growth.(original abstract)
- Abdulnasser, H., Manuchehr, I., Time-series evidence for Balassa's export-led growth hypothesis, "Journal of International Trade and Economic Development" 9, pp. 355-365, 2000.
- Alici, A. A., Ucal, M. S., Foreign Direct Investment, Exports and Output Growth of Turkey: Causality Analysis. Paper to be Presented at the European Trade Study Group (ETSG), Fifth Annual Conference 11-13 September in Madrid, Universidad Carlos III de Madrid, 2003.
- Asafu-Adjaye, J., The relationship between energy consumption, energy prices and economic growth: time series evidence from Asian Developing Countries, "Energy Economics" 22, pp. 615-625, 2000.
- Awokuse, T. O., Trade openness and economic growth: is growth export-led or import-led? "Applied Economics" 40 (2), pp. 161-173, 2008.
- Balasubramanyam, V. N., Salisu, M. A., Sapsford, D., Foreign Direct Investment and Growth in EP and IS Countries, "Economic Journal" 106, pp. 92-105, 1996.
- Balasubramanyam, V. N., Salisu, M., Sapsford, D., Foreign Direct Investment as an Engine of Growth, "Journal of International Trade and Economic Development" 8, pp. 27-40, 1999.
- Borenztein, E., De Gregorio, J., Lee, J.-W., How does foreign direct investment affect economic growth, "Journal of International Economics" 45, pp. 115-135, 1998.
- Cetintas, H., Barisik, S., Export, Import and Economic Growth: The Case of Transition Economies, "Transition Studies Review" 15, pp. 636-649, 2009.
- De Mello, L. R., Foreign Direct Investment in Developing Countries and Growth: A Selective Survey, "Journal of Development Studies" 34, pp. 1-34, 1997.
- De Mello, L. R., Foreign direct investment-led growth: Evidence from time series and panel data, "Oxford Economic Papers" 51, pp. 133-151, 1999.
- Dickey, D. A., Fuller, W. A., Distribution of the estimators for autoregression time series with a unit root, "Journal of the American Statistical Association" 74, pp. 427-431, 1979.
- Elliott, G., Rothenberg, T. J., Stock, J. H., Efficient tests for an autoregressive unit root, "Econometrica" 64 (4), pp. 813-836, 1996.
- Engle, R. F., Granger, C. W. J., Co-integration and error correction: Representation, estimation, and testing, "Econometrica" 55, pp. 251-276, 1987.
- Granger, C. W. J., Some recent developments in a concept of causality, "Journal of Econometrics" 39, pp. 199-211, 1988.
- Hatanaka, M., Time-Series-Based Econometrics: Unit Roots and Cointegration. Oxford University Press, Oxford, 1996.
- Herzer, D., Klasen, S., Nowak-Lehmann, F., In search of FDI-led growth in developing countries: The way forward, "Economic Modelling" 25 (5), pp. 793-810, 2008.
- Izmen, U., Yilmaz, K., Turkey's Recent Trade and Foreign Direct Investment Performance. TÜSİAD-KOÇ University Economic Research Forum Working Paper Series. Working Paper 0902, March 2009.
- Johansen, S., Statistical analysis of cointegration vectors, "Journal of Economic Dynamics and Control" 12 (4), pp. 231-254, 1988.
- Johansen, S., Juselius, K., Maximum likelihood estimation and inference on cointegrationwith applications to the demand for money, "Oxford Bulletin of Economics and Statistics" 52 (2), pp. 169-210, 1990.
- Lee, C. C., Chang, C. P., Energy consumption and economic growth in Asian economies: A more comprehensive analysis using panel data, "Resource and Energy Economics" 30, pp. 50-65, 2008.
- Lipsey, R. E., Inward FDI and Economic Growth in Developing Countries, "Transnational Corporations" 9 (1), pp. 61-95, 2000.
- Liu, X., Shu, C., Sinclair, P., Trade, foreign direct investment and economic growth in Asian economies, "Applied Economics" 41 (13), pp. 1603-12, 2009.
- MacKinnon, J., Critical values for cointegration tests. Chapter 13 in R. F. Engle and C. W. J. Granger (eds.), Long-run Economic Relationships: Readings in Cointegration. Oxford University Press, 1991.
- MacKinnon, J., Numerical distribution functions for unit root and cointegration tests, "Journal of Applied Econometrics" 11 (6), pp. 601-618, 1996.
- Maki, Shiva S., Somwaru, A., Impact of Foreign Direct Investment and Trade on Economic Growth: Evidence from Developing Countries, "American Journal of Agricultural Economics" 86 (3), pp. 795-801, 2004.
- Mahadevan, R., Suardi, S., A dynamic analysis of the impact of uncertainty on import- and/or export-led growth: The experience of Japan and the Asian Tigers, "Japan and the World Economy" 20, pp. 155-174, 2008.
- Masih, A. M. M., Masih, R., Energy consumption, real income and temporal causality: results from a multi-country study based on cointegration and error-correction modeling techniques, "Energy Economics" 18, pp. 165-183.
- Nair-Reichert, U., Weinhold, D., Causality Tests for Cross-Country Panels: A New Look on FDI and Economic Growth in Developing Countries, "Oxford Bulletin of Economics and Statistics" 63, pp. 153-171, 2001.
- Narayan, P. K., The saving and investment nexus for China: Evidence from cointegration tests, "Applied Economics" 37, pp. 1979-1990, 2005.
- Ng, S., Perron P., Lag length selection and the construction of unit root tests with good size and power, "Econometrica" 69 (6), pp. 1519-1554, 2001.
- Ozturk, I., Foreign Direct Investment - Growth Nexus: A Review of The Recent Literature. "International Journal of Applied Econometrics and Quantitative Studies" 4(2), pp. 79-98, 2007.
- Ozturk, I., Kalyoncu, H., Foreign Direct Investment and Growth: An Empirical Investigation based on Cross-Country Comparision, "Economia Internazionale" LX (1), pp. 75-83, 2007.
- Ozturk, I., Acaravci, A., Testing The Export-Led Growth Hypothesis: Empirical Evidence From Turkey, "The Journal of Developing Areas", Forthcoming.
- Pahlavani, M., Wilson E., Worthington A. C., Trade-GDP Nexus in Iran: An Application of Autoregressive Distributed Lag (ARDL) Model, "American Journal of Applied Sciences" 2 (7), pp. 1158-1165, 2005.
- Panas, E., Vamvoukas, G., Further evidence on the Export-Led Growth Hypothesis, "Applied Economics Letters" 9 (11), pp. 731-35, 2002.
- Pesaran, H. M., The role of economic theory in modelling the long-run, "Economic Journal" 107, pp. 178-191, 1997.
- Pesaran, H. M., Shin, Y., Autoregressive distributed lag modelling approach to cointegration analysis (in): Storm, S. (ed.) Econometrics and Economic Theory in the 20th Century: The Ragnar Frisch Centennial Symposium, chapter 11. Cambridge University Press, 1999.
- Pesaran, M. H., Shin, Y., Smith, R. J., Bounds testing approaches to the analysis of level relationships, "Journal of Applied Econometrics" 16, pp. 289-326, 2001.
- Phillips, P. C. B., Perron, P., Testing for a Unit Root in Time Series Regression, "Biometrika" 75, pp. 335-346, 1988.
- TCMB, The Central Bank of the Turkish Republic electronic data delivery system (http://evds.tcmb.gov.tr), 2009.
- Temiz, D., Gokmen, A., Foreign Direct Investment and Export in Turkey: The Period of 1991-2008. EconAnadolu 2009: Anadolu International Conference in Economics June 17- 19, 2009, Eskisehir, Turkey.
- Thangavelu, S. M., Rajaguru, G., Is there an export or import-led productivity growth in rapidly developing Asian countries? A multivariate VAR analysis. "Applied Economics" 36 (10), pp. 1083-1093, 2004.