Abstract:

Countries face many fundamental macroeconomic problems. Among these problems, the current account deficit is one of the most common problems faced by countries with liberalization. Especially developing countries depend on imports of intermediate goods to cause high current account deficits. Foreign direct investments (FDI) come to the fore in eliminating these deficits. This study aims to empirically examine the relationship between the current account deficit and foreign direct investment. In the study, with data from 1990-2019, MIST (Mexico, Indonesia, South Korea and Turkey) countries have made special panel cointegration tests. As a result of the analysis, a long-term relationship was found between the variables. The mean group dynamic least squares (DOLSMG) estimator was used to reveal the effect of the long-term relationship. As a result of the analysis, it was concluded that foreign direct investments, excluding South Korea, negatively affected the current account deficit among the countries examined. According to the panel DOLSMG test result, the elasticity coefficient of FDI throughout the panel is 1.22. In other words, a 1 unit increase in FDI reduces the current account deficit by 1.22 units. In addition, it was found that trade openness, another variable examined in the analysis, increased the current account deficit. It is concluded that an increase of 1 unit in the trade deficit increases the current account deficit by 0.11 unit.

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