THE NONLINEAR CAUSALITY BETWEEN THE INTERNATIONAL CAPITAL FLOWS AND ECONOMIC GROWTH IN TURKEY

The orthodox economic view regarding the relationship between the free international capital flows and economic growth is clear. capital flows positively affect growth all around the world. that is, a causal relationship from capital flows to growth is assumed. however, recent empirical findings call the orthodox thinking into question since some authors reported no relationship between the international capital flows and growth and some other authors found causal relationship from growth to capital inflows. finally, some truly shocking results such as negative relationship between capital inflows and growth are also reported. however, it is shown that a nonlinear relationship structure such as the regime-switching framework might allow for both negative- and positive-impact regimes of capital inflows on growth. therefore, this paper had three aims. first aim was to find whether there exists any causal relationship between the capital flows and growth. second aim was to investigate the direction possible causal relationship(s). third aim was to check for possible nonlinearities in the possible causal relationship(s). we conducted a new nonparametric causality test which has the ability to capture nonlinear causalities on turkish data. in conclusion, we reported that capital inflows granger cause growth both linearly and nonlinearly. the causality relationship is unidirectional, i.e .runs only from capital inflows to growth but not the other way round. hence, capital inflows and growth are not endogenous variables and growth is not a pull factor for international capital.