Determinants of foreign direct investment: An econometric analysis for Turkey

Foreign direct investment is one of the most significant phenomena that emerged with the pick speed of the globalization process. Foreign direct investment is more important and distinguished from other types of financing in terms of being long-term, providing human resource, technology transfer, employment opportunities and being a source of capital insufficiency. Developing countries, including Turkey, considers foreign direct investment as the most effective policy tool to solve their basic problems such as the savings bottleneck and lack of capital. In this study, a research was conducted on the determinants of foreign direct investment in Turkey, by using the data for the years 1985-2020. In this regard, firstly, whether the selected GDP per capita, inflation and openness variables are stationary or not was investigated by using Augmented Dickey Fuller and Phillips Perron unit root tests. After determining the stationarity of the series, the Johansen cointegration test and Granger causality analysis were performed to explain the causality relationship between the series. Lastly, impulse-response and variance decomposition techniques were used to determine the relationship between variables by setting up the VAR model. Empirical findings, show that there is a positive relationship between GDP per capita and foreign direct investment, while there is a negative relationship between inflation and openness variables and foreign direct investment.