Foreign direct investment relationship with exchange rate: The case of Turkey

In the globalizing world economy, foreign direct investments have become important for less developed countries. Because together with foreign direct investments, employment, growth, development, foreign exchange, entrepreneurship and technology also come to the country. Less developed countries compete with each other to attract these factors, which are important shortcomings to the country. Foreign direct investors invest in the host country currency. In this study, the effect of the exchange rate, which is an important determinant for the transnational companies making foreign direct investments, is investigated. In the econometric section of the present study, the effect of real effective exchange rate, rate of openness and market size on the foreign direct investment is analyzed with annual data covering the period 1984-2019. Unit root tests were applied to the variables and it was determined that all of them were stationary in the same order, the Johansen cointegration test was applied and the existence of long-term correlation was determined. According to the results estimated with the Johansen cointegration test, a positive relationship was found between real effective exchange rate and market size and foreign direct investments, while a negative relationship was found between openness ratio and foreign direct investments.