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The Effect of Interest Rates on Portfolio Investments and Foreign Direct Investments in Türkiye

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  • Levent Sezal
  • Selçuk Kendirli

Abstract

This study aims to analyse the relationship between foreign direct investments (FDI) and portfolio investments (PI) and interest rates. Firstly, ADF and PP unit root tests were applied to determine whether the variables were stationary or not. Since the series became stationary at different levels, the ARDL (Autoregressive Distributed Lag Bound Test) test, one of the cointegration tests, was applied. Afterward, Toda-Yamamoto tests were utilized to determine whether there is causality between the variables and if there is a causality relationship, to determine its directions. According to the ARDL bound test results, it is concluded that there is no short-term asymmetric relationship between PI and other independent variables. In other words, there is no statistically significant relationship between PI and EUR, USD and TL interest rates. On the other hand, it is concluded that the FDI dependent variable and other independent variables are long-run cointegrated in the relevant period. According to the results of the Toda-Yamamoto causality test where FDI and TL, EUR, and USD are independent variables, it is concluded that there is a Granger causality relationship between FDI and TL and EUR interest rates.

Suggested Citation

  • Levent Sezal & Selçuk Kendirli, 2024. "The Effect of Interest Rates on Portfolio Investments and Foreign Direct Investments in Türkiye," Journal of Research in Economics, Politics & Finance, Ersan ERSOY, vol. 9(2), pages 271-286.
    • Handle: RePEc:ahs:journl:v:9:y:2024:i:2:p:271-286
    DOI: 10.30784/epfad.1491461
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    References listed on IDEAS

    as
    1. Toda, Hiro Y. & Yamamoto, Taku, 1995. "Statistical inference in vector autoregressions with possibly integrated processes," Journal of Econometrics, Elsevier, vol. 66(1-2), pages 225-250.
    2. Nahed Zghidi & Imen Mohamed Sghaier & Zouheir Abida, 2016. "Does Economic Freedom Enhance the Impact of Foreign Direct Investment on Economic Growth in North African Countries? A Panel Data Analysis," African Development Review, African Development Bank, vol. 28(1), pages 64-74, March.
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    More about this item

    Keywords

    Foreign Direct Investment; Portfolio Investment; Interest Rate Rates; ARDL Border Test; TodaYamamoto Causality Test;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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