Determinants of Foreign Direct Investment: An Empirical Analysis for Turkey

This paper aims to investigate empirically the determinants of FDI for Turkey over the annual period of 1975-2012. Our main interest is to study how different reflecting inflows of FDI in Turkey are. This study examines time series data evidence concerning empirical relevance between FDI attraction and its determinative effects. As a definition, FDI is a direct investment into production or business in a country by an individual or company of another country, either by buying a company in the target country or by expanding operations of an existing business in that country. Unit root and Johansen cointegration tests are used in order to analyze the determinants of FDI for Turkey. Our econometric model expresses foreign direct investment (FDI), as a function of market size (GDP), openness (OPEN) calculated as Export + Import/GDP, inflation rate (CPI), energy production (EP), labor productivity (LABOR). The major results show that there is a positive effect of GDP, OPEN, EP and LABOR on FDI. But CPI's effect on FDI is negative in the long run.