Instead of making R&D expenditures, developing countries generally obtain technology either directly by transferring technology or indirectly by importing technology contained commodities. In this study, using the Turkey’s case, the relationship between foreign trade and economic growth is investigated in terms of knowledge transfer through foreign trade for the period 1989-2009. Using Johansen cointegration method and VAR methodology, the effect of knowledge transfer through foreign trade on economic growth is investigated in terms of direction and dimension. The estimations reveal that knowledge transfer through capital and intermediate goods imports has no significant effect on economic growth of Turkey in the period investigated. Comparisons of variables show that the effect of knowledge transfer through less knowledge contained intermediate goods imports is higher than the effect of knowledge transfer through high knowledge contained capital goods imports. This result implies that Turkey should import more capital goods and have enough human capital to use technology within capital goods.

Keywords:Foreign Trade, Economic Growth, Knowledge Transfer, Johansen Cointegration Test, VAR Analysis