The Relation Between Financial Development, Foreign Direct Investments and Employment: Granger Causality Test for Turkish Economy

Abstract

Financial development and foreign direct investments are expected to affect employment positively by contributing to economic growth. Within the framework of this expectation, this study aims to investigate how financial development and foreign direct investments in Turkish economy affect employment. For this purpose, a Time Series Analysis is carried out by using the data on Turkish economy for the period of 1988-2017. In this analysis, employment is selected as the dependent variable, while financial development and foreign direct investments are chosen as the independent variables. With regards to determination of variables in this way, this study provides a new contribution to the literature. According to the results of the Johansen Cointegration Test, there is no long-term causality between the variables. Based on the results of the Granger Causality Test that is carried out based on the VAR model, there is a positive causality from both financial development and foreign direct investments towards employment in the short-term.