Do capital ınflows provide economic growth: a case of turkey between 1984-2007

Abstract

One result of the revolution on “Information Communication Technologies” (ICT) is globalization and mobility of capital, which includes both advantages and disadvantages. Since 1980’s we have been witnessing capital inflows and outflows effecting global economies and emerging markets very deeply. Capital inflows help economies cover saving gaps and provide economic growth, but on the other hand sudden outflows may cause financial crisis with devaluation, high rates of inflation and recession, especially under the fixed exchange rate of currency. Capital flows have played an important role in the currency crisis in emerging countries and regions, such as Mexico, Argentina, Turkey and East Asia. For that reason, some economists consider capital outflows dangerous, besides taking into account that capital inflows would be useful for emerging countries. Many countries set rules to restrict capital outflows, whereas encouraging capital inflows to get enough foreign capital to achieve economic growth and other economic aims. However, the restrictions on capital outflows are not so effective and they also prevent potential capital inflows that may happen after the crisis. When we study economic history of Turkey, we can see many financial crises caused by sudden capital outflows. Such memories can make some economists or policy makers take a position against capital inflows. People who think controls are necessary, believe in doing so they can prevent financial crisis. But this approach ignore the advantages of capital inflows Our study analyzes if capital inflows were used for productive investments and supported economic growth in Turkey as a capital importing country since 1980s. At first, we studied theoric substructure about the relationship between capital inflows and economic growth performances. The second part of our study is about Turkish economic performance, examining the figures from TUĠK statistics. These statistics about Turkish economic variables between 1984 and 2007 are analyzed by using SPSS 15.00 statistical package programme. Analyzing the relation between economic growth and capital flows, we did not forget that capital flows are not the only factor that effects economic growth. According to “Endogeneous Growth Theory”, factors such as knowledge, education, human capital and technology may also be effective for sustainable economic growth. Considering positive correlation as a consequence of foreign capital invested in productive areas, we tried to reveal if Turkey achieved this goal.