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The Relationships between Foreign Direct Investment, Trade Openness, and Economic Growth: The Case of Selected Countries and Turkey

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  • Suna Sahin

    (Istanbul Yeni Yuzyil Universitesi, Iktisadi ve Idari Bilimler Fakultesi, Uluslararasi Ticaret ve Lojistik Bolumu, Istanbul, Turkiye)

Abstract

Globalization has highlighted the importance of the relationships between foreign direct investment (FDI), trade openness, and economic growth, especially in developed and developing countries; therefore, this is one of the most important issues in the international economy. FDI and trade openness are widely recognized as crucial factors in the process of economic growth. In this context, the aim of the current study is to examine the relationships between FDI, trade openness, and economic growth in selected countries (i.e., South Africa, India, Colombia, and Mexico) and Turkey. Particularly, this study investigates whether FDI and international trade contributed positively to the economic growth of the selected countries over the period 1998–2019. The countries examined in this study were selected because they are developing countries; therefore, especially open to foreign trade and FDI. The data of the study were obtained from the World Bank website. The Levin, Lin, and Chu test, panel Granger causality analysis, and Westerlund panel cointegration test were employed for unit root testing to investigate the relations of interest. Results indicated that FDI and international trade are indeed important determinants of growth in the selected countries. A two-way causality was found between gross domestic product (GDP) and FDI, and GDP was identified as a Granger cause of trade openness. The findings obtained by cointegration analysis appear to be valid even in the long term. Policy makers in the selected countries may need to liberalize their economies and reduce or remove trade barriers to encourage foreign trade and FDI inflows if they aim to achieve strong and sustainable economic growth.

Suggested Citation

  • Suna Sahin, 2021. "The Relationships between Foreign Direct Investment, Trade Openness, and Economic Growth: The Case of Selected Countries and Turkey," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(35), pages 111-128, December.
    • Handle: RePEc:ist:ekoist:v:0:y:2021:i:35:p:111-128
    DOI: 10.26650/ekoist.2021.35.984568
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    References listed on IDEAS

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