The Effects of Terrorist Activities on Foreign Direct Investment: Nonlinear Evidence from Turkey

Tolga Omay, Araz-Takay Bahar, Eruygur Ayşegül () and Kiliç Ilker
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Araz-Takay Bahar: Baskent University, Department of Economics
Eruygur Ayşegül: Cankaya University, Department Economics. Corresponding author. Ogretmentler Cad. No: 14 Yuzuncu yıl Balgat Ankara, Turkey
Kiliç Ilker: Cankaya University, Faculty of Law
Authors registered in the RePEc Author Service: Aysegul Eruygur

Review of Economics, 2013, vol. 64, issue 2, 139-158

Abstract: In this study, we examine the relationship between foreign direct investment (FDI) and terrorist incidents that took place in Turkey during the period 1991:12 to 2003:12. By doing so we contribute to the literature by allowing for a possible nonlinear relationship between terrorism and FDI. The data used to measure the intensity of terrorism were collected from a major newspaper of Turkey, and therefore is limited to the direct signals given to the market. Empirical evidence from both linear and non-linear models confirms that terrorism has a large negative impact on foreign direct investment. As far as the results of the nonlinear model estimation are concerned, the impact of terrorism on FDI is estimated to be more severe during periods of high terrorism where the intensity of terrorism passes a certain threshold level. This threshold level can be interpreted as a warning ‘signal’ that FDI may decrease severely and thereby can be used by policy makers to design effective policy measures and by potential investors as an indicator of a country’s risk profile

Keywords: Terror; FDI; Smooth Transition Regression; Terror; FDI; Smooth Transition Regression (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1515/roe-2013-0203

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