An Econometric Analysis on Determinants of Foreign Direct Investment in Turkey

Abstract

The globalization phenomenon, which started with financial liberalization in developed countries in the 1970s, was expanded in the 1980s and 90s by developing countries. This globalization process, which started with financial liberalization, made the countries more affected with each other.Foreign direct investments (FDI)are desired to be drawn into the country for the purposes of medium and long-term employment, technology transfer, integration into international markets, development of competitive environment and training of qualified labor force from developed countries to developing countries. In this study, it is aimed to describe the effect of some macroeconomic variables on FDI in Turkey in an econometrical point of view. In this analysis, for the period of 2007 Q1 -2018 Q1, the effects of economic growth, trade openness, exchange rate, labor cost and environmental taxes on FDI are analyzed by using the Autoregressive Distributed Lag (ARDL). While economic growth and trade openness variables were expected positive on FDI; exchange rate, labor cost and environmental taxes variables were expected negative on FDI. As a result, it is found that the effect of economic growth, trade openness and environmental taxes on FDI were not statistically significant in long-term but, labor cost and exchange rate variables were statistically significant in long-term. In this context, effects of the labor cost and exchange rate on the FDI were found to be negative in the long-term. In addition, the results of Error Correction Model (ECM) reveal that the short-term deviations can be balanced in the long-term.