Analysis of Impacts of Financial Development and FDI’s on Economic Growth in Türkiye with Asymmetric Cointegration and Causality Estimation

This paper analyzes the influence of financial development on economic growth in Türkiye, specifically focusing on the roles of foreign direct investment (FDI), trade openness (TRADE), and nominal exchange rate (ER) from 2005 to 2023. In this study, the Nonlinear Autoregressive Distributed Lagged (NARDL) approach was used to identify the effects of independent variables on GDP growth, and the Toda-Yamamato causality approach was used to determine the direction of the relationship between variables. In the long run, positive shocks to financial development result in GDP growth, while negative shocks cause significantly larger declines in GDP, highlighting the Turkish economy's vulnerability to negative developments. The analysis reveals that the impact of positive FDI developments on economic growth is insignificant for Türkiye. However, in the long run, the negative effects of FDI negatively impact economic growth. The findings indicate an urgent need for policies that mitigate the risks associated with financial downturns to promote sustainable economic growth. Furthermore, the Toda–Yamamoto causality test results indicate unidirectional causal relationships between economic growth and financial development, FDI, and trade openness, but no causal relationship with exchange rates, thereby demonstrating that the NARDL findings are robust to potential endogeneity and reverse causality.