FINANCIAL DEVELOPMENT, FDI AND REAL INCOME GROWTH IN TURKEY: AN EMPIRICAL INVESTIGATION FROM BOUNDS TESTS AND CAUSALITY ANALYSIS

This study empirically investigates the relationship between financial development, foreign direct investment (FDI) and real income growth in Turkey using the annual data of 1960-2006. Results of the bounds test to level relationships suggest level relationship between real income growth, FDI and financial development in the long term of the Turkish economy. It is also found that real income, FDI and selected financial development proxies converge to their long term values generally at high levels as proved by error correction models. Finally, the results of conditional Granger causality tests in the present study suggest feedback relationship between real income, FDI, and all of the selected financial development proxies in the case of Turkey.