Industry vs. Services: Long‑ and Short‑Run Growth Effects of FDI in Türkiye
Keywords:
ARDL bounds testing; economic growth; foreign direct investment (FDI); Sectoral FDI; ARDL bounds testing; Türkiye
Abstract
This paper investigates how the sectoral composition of foreign direct investment (FDI) shapes economic growth in Türkiye. Using quarterly data and an autoregressive distributed lag (ARDL) framework, two separate models are estimated: one relating output to FDI in industry and the other to FDI in services. Bounds test results indicate the presence of a long‑run cointegrating relationship in both specifications, allowing for a joint assessment of long‑ and short‑run effects. The industry model shows that domestic capital has a positive long‑run impact on output, while labour contributes negatively and industry‑related FDI exerts a weakly negative or insignificant effect, suggesting limited or adverse growth spillovers from manufacturing FDI. By contrast, in the services model both capital and services‑sector FDI have positive and significant long‑run coefficients, and services FDI emerges as a key driver of growth. Short‑run dynamics reveal hump‑shaped responses of output to sectoral FDI, with initial gains or disruptions followed by partial reversals, whereas the error‑correction terms are negative and highly significant, indicating reasonably fast convergence back to the long‑run equilibrium in both models. The findings highlight that the growth payoff from FDI in Türkiye depends critically on its sectoral allocation.
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References
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35. Narayan, P. K. (2005). The saving and investment nexus for China: evidence from cointegration tests. Applied economics, 37(17), 1979-1990.
36. Ouattara, B. (2004). Modelling the long run determinants of private investment in Senegal (No. 04/05). Credit Research Paper.
37. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.
38. Shittu, W. O., Musibau, H. O., & Jimoh, S. O. (2022). The complementary roles of human capital and institutional quality on natural resource-FDI—economic growth Nexus in the MENA region. Environment, Development and Sustainability, 24(6), 7936-7957.
39. Simionescu, M., & Naroş, M. S. (2019). The role of foreign direct investment in human capital formation for a competitive labour market. Management Research and Practice, 11(1), 5-14.
40. Ullah, S., Luo, R., Ali, K., & Irfan, M. (2023). How does the sectoral composition of FDI induce economic growth in developing countries? The key role of business regulations. Economic research-Ekonomska istraživanja, 36(2).
41. Vu, T. B., & Noy, I. (2009). Sectoral analysis of foreign direct investment and growth in the developed countries. Journal of International Financial Markets, Institutions and Money, 19(2), 402-413.
42. Wang, M. (2009). Manufacturing FDI and economic growth: evidence from Asian economies. Applied Economics, 41(8), 991-1002.
43. Yimer, A. (2023). The effects of FDI on economic growth in Africa. The Journal of International Trade & Economic Development, 32(1), 2-36.
44. Yu, W. (2021). Brain drain and economic growth: evidence of productivity growth from brain circulation. European Journal of Government and Economics (EJGE), 10(2), 128-145.
2. Akinlo, A. E. (2004). Foreign direct investment and growth in Nigeria: An empirical investigation. Journal of Policy modeling, 26(5), 627-639.
3. Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2004). FDI and economic growth: the role of local financial markets. Journal of international economics, 64(1), 89-112.
4. Alfaro, L., Chanda, A., Kalemli-Ozcan, S., & Sayek, S. (2010). Does foreign direct investment promote growth? Exploring the role of financial markets on linkages. Journal of development Economics, 91(2), 242-256.
5. Arısoy, İ. (2012). The impact of foreign direct investment on total factor productivity and economic growth in Türkiye. The Journal of Developing Areas, 46(1), 17-29.
6. Aykut, D., & Sayek, S. (2007). The role of the sectoral composition of foreign direct investment on growth. Do multinationals feed local development and growth, 22, 35-62.
7. Azman-Saini, W. N. W., & Law, S. H. (2010). FDI and economic growth: New evidence on the role of financial markets. Economics letters, 107(2), 211-213.
8. Balasubramanyam, V. N., Salisu, M., & Sapsford, D. (1996). Foreign direct investment and growth in EP and IS countries. The economic journal, 106(434), 92-105.
9. Basu, P., Chakraborty, C., & Reagle, D. (2003). Liberalization, FDI, and growth in developing countries: A panel cointegration approach. Economic Inquiry, 41(3), 510-516.
10. Bergougui, B., & Murshed, S. M. (2023). Spillover effects of FDI inflows on output growth: An analysis of aggregate and disaggregated FDI inflows of 13 MENA economies. Australian Economic Papers, 62(4), 668-692.
11. Bildirici, M., Aykaç-Alp, E., & Kayıkçı, F. (2010, November). Effects of Foreign Direct Investment on Growth in Türkiye. In International Conference on Eurasian Economies, Istanbul, November (pp. 4-5).
12. Blomström, M., Kokko, A., & Zejan, M. (1994). Host country competition, labor skills, and technology transfer by multinationals. Review of World Economics, 130(3), 521-533.
13. Borensztein, E., De Gregorio, J., & Lee, J. W. (1998). How does foreign direct investment affect economic growth? Journal of international Economics, 45(1), 115-135.
14. Cambazoglu, B., & Simay Karaalp, H. (2014). Does foreign direct investment affect economic growth? The case of Türkiye. International Journal of Social Economics, 41(6), 434-449.
15. Carkovic, M., & Levine, R. (2005). Does foreign direct investment accelerate economic growth. Does foreign direct investment promote development, 195, 220.
16. Ciftci, C., & Durusu-Ciftci, D. (2022). Economic freedom, foreign direct investment, and economic growth: The role of sub-components of freedom. The Journal of International Trade & Economic Development, 31(2), 233-254.
17. De Gregorio, J. (1992). Economic growth in latin america. Journal of development economics, 39(1), 59-84.
18. De Mello Jr, L. R. (1997). Foreign direct investment in developing countries and growth: A selective survey. The journal of development studies, 34(1), 1-34.
19. Demirsel, M. T., Adem, Ö., & Mucuk, M. (2014, October). The effect of foreign direct investment on economic growth: the case of Türkiye. In Proceedings of International Academic Conferences
20. Docquier, F., & Rapoport, H. (2012). Globalization, brain drain, and development. Journal of economic literature, 50(3), 681-730.
21. Ekinci, A. (2011). Doğrudan yabancı yatırımların ekonomik büyüme ve istihdama etkisi: Türkiye uygulaması (1980-2010). Eskişehir Osmangazi Üniversitesi İİBF Dergisi, 6(2), 71-96.
22. Findlay, R. (1978). Relative backwardness, direct foreign investment, and the transfer of technology: a simple dynamic model. The Quarterly Journal of Economics, 92(1), 1-16.
23. Gokmen, O. (2021). The relationship between foreign direct investment and economic growth: A case of Türkiye. arXiv preprint arXiv:2106.08144.
24. Harrison, M. J. (2003). Can Corrupt Countries Attract Foreign Direct Investment? A Comparison of FDI Inflows Between Corrupt and Non-Corrupt Countries. International Business & Economics Research Journal (Iber), 2(9).
25. Hermes, N., & Lensink, R. (2003). Foreign direct investment, financial development and economic growth. The journal of development studies, 40(1), 142-163.
26. Herzer, D., & Klasen, S. (2008). In search of FDI-led growth in developing countries: The way forward. Economic Modelling, 25(5), 793-810.
27. Hyun, H. J. (2006). Quality of institutions and foreign direct investment in developing countries: Causality tests for cross‐country panels. Journal of Business Economics and management, 7(3), 103-110.
28. Iamsiraroj, S., & Ulubaşoğlu, M. A. (2015). Foreign direct investment and economic growth: A real relationship or wishful thinking? Economic modelling, 51, 200-213.
29. Ilgun, E., Karl-Josef, K. O. C. H., & Orhan, M. (2010). How Do Foreign Direct Investment And Growth Interact In Türkiye?. Eurasian Journal of Business And Economics, 3(6), 41-55.
30. Iwasaki, I., & Tokunaga, M. (2014). Macroeconomic impacts of FDI in transition economies: A meta-analysis. World Development, 61, 53-69.
31. Javorcik, B. S. (2004). Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. American economic review, 94(3), 605-627.
32. Kurul, Z. (2021). Türkiye’de doğrudan yabancı yatırım girişleri ve yurtiçi yatırım ilişkisi: Doğrusal olmayan ARDL yaklaşımı. Sosyoekonomi, 29(49), 271-292.
33. Marasco, A., Khalid, A. M., & Tariq, F. (2024). Does technology shape the relationship between FDI and growth? A panel data analysis. Applied Economics, 56(21), 2544-2567.
34. Melnyk, L., Kubatko, O., & Pysarenko, S. (2014). The impact of foreign direct investment on economic growth: case of post communism transition economies. Problems and perspectives in Management, (12, Iss. 1), 17-24.
35. Narayan, P. K. (2005). The saving and investment nexus for China: evidence from cointegration tests. Applied economics, 37(17), 1979-1990.
36. Ouattara, B. (2004). Modelling the long run determinants of private investment in Senegal (No. 04/05). Credit Research Paper.
37. Pesaran, M. H., Shin, Y., & Smith, R. J. (2001). Bounds testing approaches to the analysis of level relationships. Journal of applied econometrics, 16(3), 289-326.
38. Shittu, W. O., Musibau, H. O., & Jimoh, S. O. (2022). The complementary roles of human capital and institutional quality on natural resource-FDI—economic growth Nexus in the MENA region. Environment, Development and Sustainability, 24(6), 7936-7957.
39. Simionescu, M., & Naroş, M. S. (2019). The role of foreign direct investment in human capital formation for a competitive labour market. Management Research and Practice, 11(1), 5-14.
40. Ullah, S., Luo, R., Ali, K., & Irfan, M. (2023). How does the sectoral composition of FDI induce economic growth in developing countries? The key role of business regulations. Economic research-Ekonomska istraživanja, 36(2).
41. Vu, T. B., & Noy, I. (2009). Sectoral analysis of foreign direct investment and growth in the developed countries. Journal of International Financial Markets, Institutions and Money, 19(2), 402-413.
42. Wang, M. (2009). Manufacturing FDI and economic growth: evidence from Asian economies. Applied Economics, 41(8), 991-1002.
43. Yimer, A. (2023). The effects of FDI on economic growth in Africa. The Journal of International Trade & Economic Development, 32(1), 2-36.
44. Yu, W. (2021). Brain drain and economic growth: evidence of productivity growth from brain circulation. European Journal of Government and Economics (EJGE), 10(2), 128-145.
Published
2026-03-13
How to Cite
Hekim, D. (2026). Industry vs. Services: Long‑ and Short‑Run Growth Effects of FDI in Türkiye. European Scientific Journal, ESJ, 51, 416. Retrieved from https://eujournal.org/index.php/esj/article/view/20753
Section
ESI Preprints
Copyright (c) 2026 Derya Hekim
This work is licensed under a Creative Commons Attribution 4.0 International License.
