Financial determinants of foreign direct investments: An econometric analysis on Turkey

The lack of capital seen in developing countries such as Turkey is being tried to be overcome with foreign direct investments. For this reason, foreign direct investments are very important for developing countries. After 1980, the volume of foreign direct investments in developing countries increased rapidly. The reason for this is that the world has become a common market as a result of the transition to a free market economy. Since foreign direct investments are high in some countries and low in others, it is an important issue which determinants foreign direct investments are affected by. In this context, in this study, it is aimed to determine the financial determinants that affect foreign direct investments entering Turkey between the years 1995-2020 by time series analysis. In this direction, ARDL method was used to determine the short- and long-term relationship between the variables of real effective exchange rate, BIST100 index, market capitulation and consumer price index and foreign direct investment variable. As a result of the study, while there was a positive and significant relationship between BISTT100 index and foreign direct investment in the long run, no significant relationship was found between BIST100 index and foreign direct investment in the short run. While a significant and negative relationship was found between the consumer price index and foreign direct investment in the short run, no significant relationship was found in the long run. In addition, no statistically significant relationship was found between foreign direct investments and the variables of real effective exchange rate and market capitulation in the short and long run. The findings show that the BIST100 index variable increases foreign direct investments and the consumer price index variable decreases foreign direct investments. Therefore, in order to increase foreign direct investments in Turkey, it is recommended to implement policies to increase confidence in the BIST100 index and to reduce inflation to acceptable levels for foreign investors. Keywords: Foreign Direct Investment, Financial Determinants, Time Series Analysis, ARDL Model