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Direct Investments and Current Account Balance: A Sectoral Overview

Author

Listed:
  • Kazim Azim Ozdemir
  • Ahmet Adnan Eken
  • Didem Yazici

Abstract

In this study, the relationship between Turkey’s sectoral foreign direct investment (FDI) and the current account balance (CAB) is analyzed. Using the local projection (LP) method developed by Jorda (2005), the dynamic effects of FDI inflows on the current account balance are analyzed quarterly and cumulatively. A negative relationship is observed between total FDI and CAB. This dynamic impact is also confirmed for the industrial sectors and the service sectors as a whole. As for the sub-sectors, FDI in eight sub-sectors positively contributes to the CAB in the long term. FDI in all other sub-sectors has a cumulative negative impact on CAB.

Suggested Citation

  • Kazim Azim Ozdemir & Ahmet Adnan Eken & Didem Yazici, 2021. "Direct Investments and Current Account Balance: A Sectoral Overview," Working Papers 2137, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
    • Handle: RePEc:tcb:wpaper:2137
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    File URL: https://www.tcmb.gov.tr/wps/wcm/connect/en/tcmb+en/main+menu/publications/research/working+paperss/2021/21-37
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    More about this item

    Keywords

    Foreign direct investment; Current account balance; Local projection;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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