Foreign Capital Inflow and Sustainable Economic Development: A Case Study of Turkey

This study analyses the effect of foreign capital inflow (especially foreign direct investment) on the sustainable economic development of Turkey. The main objectives of the study are to analyses the long run relationship between foreign direct investment and sustainable economic development. Quarterly data were used from the period of 1992:Q1 to 2011:Q3. The Engle-Granger Methodology for cointegration was applied to estimate the long run relationship. The Augmented Dickey Fuller (ADF) unit root tests were used to check the stationarity of each variable in the model. The ADF tests of the differences of each variable indicate that all of the variables are integrated of the first order. Cointegration was applied to estimate the long run relationship. A stable long run relationship was found between foreign direct investment and the sustainable economic development. Even if error correction coefficient was statistically significant, the short run regression model was statistically insignificant. It was conducted that foreign direct investment had positive impact on the sustainable economic development in the long run but not in the short run. Keywords: Capital Inflow, Foreign Direct Investment, Economic Development, Engle- Granger, Cointegratio