Does Foreign Direct Investment Promote Economic Growth? Evidence from Turkey

This paper examines the causal relationship between foreign direct investment (FDI) and economic growth in Turkey using annual data for the period 1968‐2002, by means of cointegration, error‐correction models (ECM) and the augmented vector autoregressive (VAR) methodology developed by Toda and Yamamoto (1995). Johansen (1992) cointegration test results indicate that these two variables are cointegrated. The empirical results from Granger causality tests based on error‐correction models and the augmented level VAR suggest that there is a strong evidence of bi‐directional Granger causality between FDI and economic growth, corroborating the feedback hypothesis for Turkey over the sample period.