Determinants of Foreign Direct Investments (FDIs) in Central and Eastern European Countries (CEECs) and Turkey

Foreign Direct Investment (FDI) is the major driver for the globalization of the international economy and a stimulus and essential for the national economic growth of the countries. In this sense, international trade and FDI flows stand out as the fastest growing economic activities in the global environment over the last two decades. As isolated transition countries, Central and Eastern European Countries (CEECs) and Turkey have lagged behind their Western European counterparts. Hence, the process of integration into the European Union (EU) and liberalization of their trade and payment regimes since the 1990s have been paramount economic objectives for these countries. Accordingly, the perception of FDI changed to become an essential engine for the process of economic, political, and social transformation and integration into the EU. Despite the acceleration of FDI policies aimed at converting Turkey and the CEE region into an ideal destination for future investments, the distribution of FDI across countries is still uneven and disparate in terms of both level and growth. Thus, main objective of this thesis is to provide a detailed examination of the FDIs with respect to their determinants into the Turkey and CEECs. In conclusion, we have proved that FDI inflows into Turkey are responsive to the sector specific variables such as turnover indices and energy prices whereas they are unresponsive to the exchange rate level and its volatility. Furthermore, we have confirmed for the first time that the main determinants of FDI components such as; equity capital, reinvested earnings and company loans into the CEECs and Turkey vary with respect to each component‘s unique requirements. As a result, policy recommendations of this study to the FDI policy makers are to treat the total FDI as multidimensional rather than monolithic and to adjust the policy variables properly based on the desired volume of each component inflow. Keywords: Foreign Direct Investment, Exchange rate volatility, Manufacturing sector, Equity capital, Reinvested earnings, Intra-company loans.