Do Economic Growth and Foreign Direct Investment Boost the Human Capital in Turkey?

Abstract

Foreign direct investment and human capital are seen as an important factor of economic growth for the host country, especially for developing countries. Although there are substantial evidence of the link between foreign direct investment and economic growth in developing countries, and the link between human capital and economic growth, there are few studies examining the impact of economic growth and foreign direct investment on human capital. This article examines the impact of economic growth and foreign direct investment on human capital in Turkey using annual data from 1985-2018. According to the results obtained by the co-integration analysis economic growth and foreign direct investment are statistically significant have positive effects on human capital in Turkey. With Granger causality analysis based on the Vector Error Correction Model, we test both bivarite and multivariate causal relationships by estimating a three-variable time series model. Our bivariate causality test results show that foreign direct investment Granger causes human capital, while economic growth does not Granger causes human capital. Our multivariate causality test also reveals that foreign direct investment and economic growth together Granger cause the human capital.