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Inflation and foreign direct investment in Turkey

Author

Listed:
  • Sekmen, Fuat

    (Sakarya University, Sakarya, Turkey)

  • Gökirmak, Haşmet

    (Istanbul Sabahattin Zaim University, Istanbul, Turkey;)

Abstract

This study investigates the short-term and long-term relationship and causality between inflation and foreign direct investments during the 1974–2018 periods for Turkey. The Johansen and Juselius Cointegration Method and the Error Correction Method (VECM) have been applied to examine this issue. After finding the cointegration between the variables, the VECM has been estimated and long-term and short-term causality tests have been carried out based on the VECM. The results have shown that there is no short-term causality between inflation and foreign direct investments in both models. However, the fact that the coefficient of the error correction term (ECT) is negative and significant in both models indicates that there is a long-term causality between inflation and foreign direct investment. An increase in foreign direct investment may lead to a moderate increase in inflation over a long time period.

Suggested Citation

  • Sekmen, Fuat & Gökirmak, Haşmet, 2020. "Inflation and foreign direct investment in Turkey," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 60, pages 70-79.
  • Handle: RePEc:ris:apltrx:0407
    as

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    References listed on IDEAS

    as
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    More about this item

    Keywords

    inflation; foreign direct investment; cointegration; causality;
    All these keywords.

    JEL classification:

    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • D25 - Microeconomics - - Production and Organizations - - - Intertemporal Firm Choice: Investment, Capacity, and Financing
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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