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Uncovering the channels through which FDI affects current account: the case of Turkey

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  • A. Yasemin Yalta

Abstract

In this paper, we argue that foreign direct investment (FDI) flows can have an effect on current account through three different channels: exports, imports, and profit remittances. By identifying the response differentials of these variables to a change in FDI flows employing a Vector Autoregression (VAR) model, we provide evidence for the current-account disturbing effects of FDI. Our findings suggest that profit remittances complicate the relationship between FDI and current account, and therefore should be taken into consideration in formulating policies concerning FDI flows.

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Bibliographic Info

Article provided by Inderscience Enterprises Ltd in its journal Int. J. of Economic Policy in Emerging Economies.

Volume (Year): 5 (2012)
Issue (Month): 2 ()
Pages: 158-167

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Handle: RePEc:ids:ijepee:v:5:y:2012:i:2:p:158-167

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Web page: http://www.inderscience.com/browse/index.php?journalID=219

Related research

Keywords: foreign direct investment; FDI flows; current account; exports; imports; profit remittances; Turkey.;

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  1. James R. Markusen & Anthony J. Venables, 1997. "Foreign Direct Investment as a Catalyst for Industrial Development," NBER Working Papers 6241, National Bureau of Economic Research, Inc.
  2. Anita Giselle Doraisami, 2007. "Financial crisis in Malaysia: did FDI flows contribute to vulnerability?," Journal of International Development, John Wiley & Sons, Ltd., vol. 19(7), pages 949-962.
  3. Fernando Seabra & Lisandra Flach, 2005. "Foreign direct investment and profit outflows: a causality analysis for the Brazilian economy," Economics Bulletin, AccessEcon, vol. 6(1), pages 1-15.
  4. David A. Dickey & Dennis W. Jansen & Daniel L. Thornton, 1991. "A primer on cointegration with an application to money and income," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 58-78.
  5. M. T. Alguacil & V. Orts, 2003. "Inward Foreign Direct Investment and Imports in Spain," International Economic Journal, Taylor & Francis Journals, vol. 17(3), pages 19-38.
  6. Andrew Mold, 2008. "The Fallout from the Financial Crisis (4): Implications for FDI to Developing Countries," OECD Development Centre Policy Insights 86, OECD Publishing.
  7. Luiz de Mello, 1997. "Foreign direct investment in developing countries and growth: A selective survey," Journal of Development Studies, Taylor & Francis Journals, vol. 34(1), pages 1-34.
  8. Lipsey, Robert E & Weiss, Merle Yahr, 1984. "Foreign Production and Exports of Individual Firms," The Review of Economics and Statistics, MIT Press, vol. 66(2), pages 304-08, May.
  9. Bruce A. Blonigen, 1999. "In Search of Substitution Between Foreign Production and Exports," NBER Working Papers 7154, National Bureau of Economic Research, Inc.
  10. Joze Mencinger, 2008. "The "Addiction" with FDI and Current Account Balance," ICER Working Papers 16-2008, ICER - International Centre for Economic Research.
  11. Fry, Maxwell J. & Claessens,Constantijn A. & Burridge, Peter & Blanchet, Marie-Christine, 1995. "Foreign direct investment, other capital flows, and current account deficits : what causes what?," Policy Research Working Paper Series 1527, The World Bank.
  12. Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
  13. Markusen, James R., 1984. "Multinationals, multi-plant economies, and the gains from trade," Journal of International Economics, Elsevier, vol. 16(3-4), pages 205-226, May.
  14. repec:ebl:ecbull:v:6:y:2005:i:1:p:1-15 is not listed on IDEAS
  15. Sims, Christopher A & Stock, James H & Watson, Mark W, 1990. "Inference in Linear Time Series Models with Some Unit Roots," Econometrica, Econometric Society, vol. 58(1), pages 113-44, January.
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Cited by:
  1. Srđan Boljanović, 2012. "A Sustainability Analysis Of Serbia’S Current Account Deficit," Economic Annals, Faculty of Economics, University of Belgrade, vol. 57(195), pages 139-172, October -.

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