The Effect of Private Sector Fixed Capital Investment, External Openness and External Debt on Economic Growth: Empirical Evidence from Turkey

Özet

Purpose- This article presents results related to the effect of private sector fixed capital investments, external debt and external openness variables on economic growth in Turkey. Whether the correlation between these variables is significant or not and what the findings mean will be important in terms of offering choice to policy-makers. Design/methodology/approach - The research is theoretically based on the Solow growth model and the Cobb-Douglas production function. The Solow growth model, basing economic growth on labor and capital and considering a closed economy, was expanded by the addition of the external openness variable. The research considers the short- and long-term impacts of private sector fixed capital investments, external debt and external openness variables on economic growth and aims to investigate the correlations between these variables empirically. Data for the series were obtained from the World Bank and encompass the period from 1973 to 2022. The autoregressive distributed lag (ARDL) method was used linked to the stability levels of the variables. The presence of cointegration between variables was investigated with the ARDL bounds test and short- and long-term analyses were performed. Findings - The results of the research show economic growth had a significant correlation with external debt, fixed capital investments and external openness. Fixed capital investments positively affected economic growth, in accordance with theoretical expectations. External debt had negative impacts on economic growth in the long term and positive impacts in the short term. External openness had positive impact on economic growth in the long term and negative impacts in the short term. Discussion - The findings support the view of neoclassical economists that external debt will negatively affect economic growth. While external debt positively affects economic growth in the short term, this effect becoming negative in the long term supports the view of economists who suggest that the “Laffer curve” will be valid.