Direct Investments and Current Account Balance: A Sectoral Overview

Kazim Azim Ozdemir, Ahmet Adnan Eken and Didem Yazici

Working Papers from Research and Monetary Policy Department, Central Bank of the Republic of Turkey

Abstract: In this study, the relationship between Turkey’s sectoral foreign direct investment (FDI) and the current account balance (CAB) is analyzed. Using the local projection (LP) method developed by Jorda (2005), the dynamic effects of FDI inflows on the current account balance are analyzed quarterly and cumulatively. A negative relationship is observed between total FDI and CAB. This dynamic impact is also confirmed for the industrial sectors and the service sectors as a whole. As for the sub-sectors, FDI in eight sub-sectors positively contributes to the CAB in the long term. FDI in all other sub-sectors has a cumulative negative impact on CAB.

Keywords: Foreign direct investment; Current account balance; Local projection (search for similar items in EconPapers)
JEL-codes: C32 F21 F43 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:tcb:wpaper:2137

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