Testing for Causality between the Foreign Direct Investment, Current Account Deficit, GDP and Total Credit: Evidence from G7

  • Yusuf Ekrem Akbas Adiyaman University, Faculty of Economics and Administrative, Department of Economics, Turkey
  • Mehmet Senturk Kilis 7 Aralik University, Vocational High School, Foreign Trade Department, Turkey
  • Canan Sancar University of Gumushane, Kelkit Aydin Dogan Vocational High School, Accounting and Tax Applications Department, Turkey

Abstract

In this study, countries were analyzed between 1990 and 2011 in order to determine whether a causal relationship exists among current account deficit, GDP, foreign direct investment, and total credits of G7. Analysis took into account the cross-sectional dependence and was applied to test the causality among the variables form the panel. Firstly, panel unit root tests were used for determining stationary of variables. As a result of the panel unit root tests, it was found that GDP and foreign direct investment have a stationary structure and that total credits and current account deficit contain unit root. In order to see whether there is a long-term relationship among the variables or not, the panel co-integration test was used. As a result of the test, it was concluded that there is a co-integration relationship among the series. The possibility of a causal relationship was analyzed among the variables using the causality test developed by Elena Ivona Dumitrescu and Christophe Hurlin (2012). Results of the analysis showed a unidirectional causal relationship from current account deficit and foreign direct investment to GDP. Bidirectional causality was found between current account deficit and total credits. Finally, a unidirectional relationship was found from foreign direct investment to current account deficit and total credits.


Key words: Current account deficit, Foreign direct investment, GDP, Credit, Panel co-integration and causality, G7.
JEL: F21, F30, F43, C33.

How to Cite
Akbas Y., Senturk M., & Sancar C. (2013). Testing for Causality between the Foreign Direct Investment, Current Account Deficit, GDP and Total Credit: Evidence from G7. Panoeconomicus, 60(6), 791-812. doi:10.2298/PAN1306791A
Section
Preliminary report