Effects of economic complexity on foreign direct investment: Multidimensional panel data analysis

Economic complexity is a concept that is defined based on the diversity of products produced in countries, helps to explain the difference in development levels between the countries of the world and expresses the dominance of countries over the products they produce, and the most important determinant is the ability to produce products that require sophisticated knowledge. While in the 1960s, factors such as the importance of market size, natural resources or cheap labor were determinants for foreign direct investments, after the 1980s, countries with production skills and technology became centers of attraction for multinational companies that wanted to invest. In this regard, it seems likely that there is a relationship between economic complexity and foreign direct investments. The aim of this study is to analyze the effects of economic complexity on foreign direct investment using multidimensional panel data analysis, taking into account the income levels of world countries. In the study, the Economic Complexity Index, net foreign direct investment flows and per capita income data of 127 countries from different geographical regions and income levels were used as control variables. According to the findings obtained as a result of the analysis, it was determined that there is a positive and statistically significant relationship between economic complexity and foreign direct investment. The increase in Foreign Direct Investments (FDI) brings with it many benefits. Especially foreign-dependent economies are becoming more vulnerable to macroeconomic and financial fragilities due to their structure. One of the ways to minimize this fragility is to increase the level of FDI. The study determines the level of economic complexity. It emphasizes that initiatives aimed at increasing direct investment flows, which positively affect the country's domestic economy and welfare, can both increase the flow of direct investments and the necessity of exporting high-tech products in order to reach good levels in global competition. The policy structure intended to advance in this direction is to implement initiatives such as investing in education and vocational training in order to develop human capital, developing institutional infrastructure, encouraging development initiatives, protecting intellectual property rights and increasing the sectors engaged in high-tech production.