The Location Choice of Foreign Direct Investment Within Turkey: An Empirical Analysis

This paper investigates the location choice of foreign direct investment (FDI) in Turkey over the period 1996-2003. Using FDI data at the provincial level and negative binomial model, the empirical evidence confirms that agglomeration economies and information costs are the most important determinants of FDI location in Turkey. Specifically, both foreign and domestic agglomerations and in particular urbanization economies strongly affect the location decision of foreign investors. The results also suggest that foreign investors are attracted to provinces with fast growing market, more educated labour force, high density of road network, greater public investment, milder climate, larger area and better quality of life. On the other hand, the empirical findings show that wage, productivity, labour availability, unionization, sea and air transportation, free zones and instability have no significant impacts on the location decision.