The Economic Determinants of Foreign Direct Investment: A Time Series Analysis on the Turkish Economy

Fatih Çiftci () and Rıfat Yıldız ()
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Fatih Çiftci: Bozok University
Rıfat Yıldız: Erciyes University

Business and Economics Research Journal, 2015, vol. 6, issue 4, 71-95

Abstract: The aim of this study is to empirically analyze the factors that might affect foreign direct investment flows into the Turkish economy using the data for the period of 1974-2012 within the framework of relevant theoretical approaches and interpret the results with regard to the Turkish economy. At the beginning of the empirical analysis, time-series properties of the variables in question are analyzed, and all of the variables except for trade deficit are detected to be difference-stationary while trade deficit variable is found stationary at its level. Empirical findings obtained by the ARDL bounds testing approach reveal that there is a long-term level relationship between the variables. The findings of the error correction model support the existence of the long-term relationship. The long-term findings indicate that the variables gross domestic product, real exchange rate and financial development positively affect foreign direct investment while the effects of trade deficit and external debt are negative. The impact of the variable trade openness is, on the other hand, found insignificant while it is also positive. Furthermore, the Toda-Yamamoto causality test results assert the existence of a long-run causality running from gross domestic product representing the market size to foreign direct investment. Empirical findings indicate that one of the most important factors affecting foreign direct investment is the market size, and in this regard the market size hypothesis is supported.

Keywords: Foreign direct investment; market size hypothesis; financial development; bounds testing; causality (search for similar items in EconPapers)
JEL-codes: C32 F21 F40 (search for similar items in EconPapers)
Date: 2015
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Persistent link: https://EconPapers.repec.org/RePEc:ris:buecrj:0204

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