Abstract

One of the biggest problems of developing countries, like Turkey, is the insufficiency of savings for financing their investments that is crucial for economic growth. This gap is financed by foreign capital in today’s global economies. It is generally believed that, the correlation between national savings and domestic investments becomes weak when there is high capital mobility between countries.

In this study, the relationship between the deficits incurred in net public and private sector savings and capital movements during the term of 1962 - 2006 in Turkey has been tested using the time series methodology in line with Feldstein - Horioka Hypotesis. In the model, two steps Engle-Granger forecast model has been utilised. At the end of calculations, its been concluded that the variables were integrated at the same degree and (ut), or residuals, are stationary. In the calculations using OLS method, long term cointegration exists between the savings and investments. But the existence of this relationship does not deny capital movement hypotesis, statistically; calculated cointegration vector being less than one means international capital was mobile even in the case of a long term relationship between domestic investments and savings exists.