Cointegration and Causality among Foreign Direct Investment in Tourism Sector, GDP, and Exchange Rate Volatility in Turkey

The Granger-causality (GC) and error correction (ECM) techniques were applied 1980-2005 data for Turkey to examine cointegration and causality among foreign direct investment(FDI) in tourism sector, overall GDP, and exchange rate volatility (EX). According to the ECM technique, the hypothesis that “no cointegration” was rejected for all three variables. The GC results detect causality runs from one-way from GDP to FDI, but the GC results detect bi-directional causality between GDP and EX suggesting that GDP and EX are jointly determined, but one way causality running from FDI to EX.