THE RELATIONSHIP BETWEEN CAPITAL FLOWS AND ECONOMIC GROWTH: ASYMMETRIC EFFECTS

This study investigates the causal relationship between capital flows and economic growth for Turkey using different capital flows indicators and current econometric methods. Estimates were made using foreign direct investment (FDI) and portfolio investment data covering the years between 1974-2016 for Turkey. In addition, Hatemi-J (2012) causality test and Hatemi-J (2014) asymmetric impulse and response functions were used empirical analysis. These methods indicate that the causality relationship between the variables can be different if the shocks are separated into positive and negative. The findings of the study show that there is no causality in both positive and negative shocks from direct foreign investment inflow and outflow variables to economic growth. While the causality relationship for positive shocks from economic growth to foreign direct investment input and output variables cannot be determined, there is a causality for negative shocks. Thus, it is concluded that economic growth is the cause of foreign direct investments but this relationship is asymmetric. There is no causal relationship from portfolio investments to economic growth and from economic growth to portfolio investments in both types of shock