Forei̇gn di̇rect investment and economi̇c integration: a practice on Turkey

Many factors are influential on foreign direct investment which is an external source in achieving economic growth and development of developing countries and less developed countries. The role of the membership of economic integration on these investments is a matter that has been much discussed over the last years. In this study, with a model has been supplied from both theoretical and practical literature, the effect of Customs Union Agreement signed between the European Union and Turkey in 1995 on foreign direct investment in Turkey as a sign of the period of membership to economic integration has been researched, using unit root tests, cointegration test and error correction model in Turkey during the period of 1974-2015. The effect of the customs union is added to the model as a dummy variable. From other factors affecting foreign direct investments has been included to the model the gross domestic product variable as a indicator of market size, the minimum wage variable as a indicator of labor costs and inflation rate variable as a indicator of economic instability. As a result of the model's estimation, it has seen that the membership of the customs union positively affected the foreign investments in Turkey. It can be said that in 1996 and after compared to before 1996, there are increases in foreign direct investment in Turkey.