The determinants of foreign direct investment: The cases of developing countries and Turkey

As product of globalization and projected to play a key role in eliminating capital shortage by developing countries, Foreign direct investment (FDI) is considered to be a form of investment in which both developed and developing countries compete to have it. The advantages of FDI bring not only low-cost production but also employment, technology and management information to the host country and provide many advantages throughout the country, including the industry where the technology is spreading. Therefore, it is aimed to examine the relationship of FDI with it's determinants in a detailed way and the effects of common parameters in the inflow and outflow of foreign direct investments are examined together. In this study, analysis on determinants of foreign direct investment and capital inflows into emerging markets output was studied in two categories which are developing countries and Turkey. As a result of the analyzes made by using panel data method according to the data of 1996-2016 for 16 developing countries, market size, exchange rate, openness, labor productivity, corruption and political risk are positively correlated with FDI inflows. Smilarly, the increases in market size, exchange rate, openness, labor productivity, corruption and political risk lead to FDI outflows from countries while increases in interest rates reduce FDI outflows. As a result of analysis using time series method for Turkey during the period 1986-2015, there is a positive correlation between market size, exchange rate and FDI inflows while there is a negative correlation between interest rate and FDI inflows. Similarly, there is positive correlation between market size, exchange rate and FDI outflows; while there is a negative relationship between interest rates, trade openness and FDI outflows. Also, there is a one-way causality relationship from foreign direct investments to GDP per capita and from foreign exchange to foreign direct investments. According to the findings obtained from the study, for developing countries to get the share they expect from international capital, it is necessary to ensure the formation of appropriate investment climate by taking into consideration the political factors, especially the variables that will provide economic stability. Key words: Foreign direct ınvestment, corruption, developing countries, political risk