Wavelet analysis of the foreign aid and economic growth nexus in Turkey

Abstract

Turkey is one of the highest donors in the world, who also receives substantial amount of aids from various entities and countries. This paper aims to investigate the on going nexus between economic growth (EG) and foreign aid (AID) in Turkey; utilizing yearly data between 1960 and 2022 by employing wavelet analysis tools: namely the power spectrum, wavelet coherence, wavelet cohesion and Continuous Wavelet Transform (CWT) causality approach, which provides information of both long-run and short-run linkages for separate subperiods of time and frequencies. Our results reveal that; (a) the result of the power spectrum indicates that at different frequency and period, there is evidence of significant variation in EG and AID; (b) the outcome of the wavelet coherence confirms that there is comovement at varying frequencies and varying periods between EG and AID, with AID leading; (c) the outcome of the wavelet cohesion shows a positive/negative connection in the short and medium term, but a negative connection in the long term; (d) the result of the CWT causality approach confirmed the ‘feedback hypothesis’ at the aggregate level, in-phase and out-phase condition. As a result, policymakers should be more effective in supporting EG at high frequencies and only under the rule of the economic cycle.