GROWTH CONSEQUENCES OF FOREIGN DIRECT INVESTMENT: SOME RESULTS FOR TURKEY

Turkey has become the dominant recipient of FDI inflows in the Western Asian region. We explore if such inflows have promoted growth as expected. Our analysis of the FDI/growth nexus focuses both on the long-and short-run relations and allows for the possibility that growth also responds to other factors. The results support the theoretical priors and support the existence of a robust long-run relationship linking real economic growth with FDI inflows, economic openness and human capital. Among the three growth ingredients, only human capital accumulation (good education) appears capable of stimulating economic growth in the short-run as well. The results further imply that programs to attract larger FDI inflows to Turkey should persist for some time before they can produce noticeable economic benefits.FDI Inflows, Economic Growth, Human Capital, Turkey

On the Integration of Emerging Stock Markets in the Middle East

Results from the Johansen-Juselius test suggest that the Middle East emerging stock markets are segmented globally, but appear highly integrated within the region. Moreover, the Gonzalo- Granger test, in conjunction with error-correction models, indicates that the market in Egypt is a dominant force driving other markets in the region. The apparent segmentation of the markets in the Middle East from the global market implies that these emerging markets provide international investors with potential diversification gains.

Rational Expectations and the Role of Monetary Policy: Some Tests Based on the Fisher Equation

This paper tests, for the United Kingdom, the Lucas/Sargent and Wallace proposition that inflation influences real output if it is unexpected. Rational estimates of expected and unexpected inflation are derived using the Fisher/Fama hypothesis regarding the relationship between nominal (market) interest rates and expected inflation, but where real interest rates are allowed to vary. The empirical results, based on a modified real output model, do not contradict the Lucas/Sargent and Wallace proposition. As such, these results cast doubts on the usefulness of systematic inflationary (monetary) policy for stabilizing the real side of the British economy even in the short run.

Market Interdependence In The Pacific Basin Region: Internal Drives And External Influences

This paper examines equity market linkages in the Pacific Basin (PB) region and their relations to other mature markets and also assesses the response of these markets to major global events. Results from weekly data for market pairs and for the region as a whole consistently suggest that markets in the PB region are internally interdependent and exhibit significant external relations mainly with the US (rather than Japan). The presence of potent market linkages seems inconsistent with market efficiency provided that implied trading rules yield risk-adjusted excess returns. However, the results further indicate that PB market linkages, both internally within the region and externally with the US, have endured considerable weaknesses particularly since the September 11, 2001 terrorist attack. Such recent weakening of equity market linkages may have strengthened diversification benefits available to US investors from investing in the PB region. We also obtain evidence indicating that three main factors significantly explain the differing degrees of market linkages across countries in the PB region; namely, exchange-rate volatility, equity market volatility and money-market interlink