REVISITING THE NEXUS BETWEEN FINANCIAL DEVELOPMENT, FDI, AND GROWTH: NEW EVIDENCE FROM SECOND GENERATION ECONOMETRIC PROCEDURES IN THE TURKISH CONTEXT

Abstract

This study investigates the impact of the selected financial development proxies and foreign direct investment (FDI) on the growth in the case of Turkey, using annual data for the 1960-2011 period. The second-generation econometric procedure has been applied for the first time to the Turkish data with this respect. Unit root tests by Carrion-i-Silvestre et al. (2009) assume that real income, financial development proxies, and FDI are non-stationary at levels, but become stationary at first differences through multiple structural breaks. Cointegration results by Maki (2012) confirm the existence of a long-term equilibrium relationship between real income growth, financial development, and FDI, again through multiple structural breaks. Finally, this paper confirms that financial development and FDI are long-term drivers of real income, which enable it to react to its long-term path significantly.