Drivers of Prosperity: Long-Term Impact of Tourism, Trade Liberalization, And Political Stability on Turkey's Economic Growth

Abstract

Purpose – The aim of this study is to explain the interactions between tourism, trade liberalization, political stability, and economic development in Turkey during 1995-2022. To examine long-term relationships, real output (GDP), physical capital investment (GFC), employment (EMP), human capital development (EDU), political stability (PS), and international tourist arrivals (TA) are analyzed using FMOLS and CCR estimation methods. Design/methodology/approach - FMOLS and CCR methods were chosen to investigate long-term relationships. These methods help identify the contribution of tourism, capital investment, employment, and political stability to Turkey's growth dynamics over the study period. These methods are robust in addressing endogeneity issues, non-stationarity, and cross-sectional dependence, providing reliable insights into long-term economic relationships. Findings – The FMOLS estimations show significant positive impacts on economic growth from capital investments (coefficient=0.645), employment (0.731), human capital development (0.381), international trade (0.744), and tourism inflows (0.140), highlighting these factors as critical drivers of Turkey's growth. However, political stability demonstrates a notable negative effect (coefficient=-0.136), indicating the detrimental impact of political instability. CCR estimations confirm these findings, with similar positive effects from capital investment (0.645), employment (0.737), education (0.373), trade liberalization (0.766), and tourism (0.139), alongside a persistent negative effect of political instability (coefficient=-0.141). These results underscore the necessity of stable governance and secure environments. Discussion – The study concludes that for Turkey to fully leverage its economic potential on the global stage, challenges related to infrastructure, labor market, tourism, and political stability must be addressed directly. A holistic approach fostering inclusive growth, human capital development, and a business-friendly environment is recommended.