The Effect of Foreign Direct Investment (FDI) Stock on Sustainable Growth in Türkiye: Endogenous Growth with ARDL Approach

This study examines whether inward foreign direct investment (FDI) has ultimately supported or hindered sustainable economic growth in Türkiye by analyzing the impact of FDI stocks on output per worker within an endogenous-growth framework. Using annual data for 1970–2024 and an ARDL approach, the study estimates the short- and long-run effects of FDI stock, distinguishes these effects from those of domestic capital stock, and assesses whether they remain stable across different sub-periods. The results show that FDI stock has a robustly negative impact in the long run, and this adverse long-run effect persists when the sample is split into pre- and post-2001 crisis subsamples, while domestic capital does not emerge as a significant driver of growth. Human capital—measured by years of schooling—also displays a negative long-run association with output per worker, whereas institutional quality has a strong positive effect. The study contributes to the Turkish FDI–growth literature by providing, to the best of available knowledge, the first time-series evidence that focuses on FDI stocks and jointly models foreign and domestic capital stocks, and by documenting a long-run-negative effect of FDI stock that is robust over time. The findings imply that policy in Türkiye should shift from maximizing the volume of FDI toward improving its sectoral structure and governance, upgrading education quality and retaining high-skilled workers, and implementing concrete rule-of-law reforms.