Determinants of foreign direct investment in Turkey: a panel study approach

Esiyok, Bulent (2011): Determinants of foreign direct investment in Turkey: a panel study approach.

Abstract

This study examines the determinants of foreign direct investment (FDI) using a panel of bilateral outward FDI stocks of 19 OECD countries in Turkey between 1982 and 2007. Employing a knowledge-capital model, this study finds that joint national incomes, per capita difference, investment liberalisation and the cost of exporting to Turkey have significant effects on FDI in Turkey. In addition, the prospect of European Union membership, government stability, infrastructure, bilateral exchange rate, exchange rate volatility and openness to trade play an important role in determining the amount of FDI in Turkey. Finally, this study finds that high relative unit labour costs and corruption provide stimuli to FDI.

• Item Type: MPRA Paper
• Language: English
• Keywords: Foreign direct investment; knowledge-capital framework; EU membership; Turkey
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F23 - Multinational Firms ; International Business; F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C33 - Panel Data Models ; Spatio-temporal Models

References

Aliber, Z. R. (1970). A Theory of Direct Foreign Investment. In C. Kindleberger (Ed.), The International Corporation: A Symposium (pp. 17-34). Cambridge, Massachusetts and London: The MIT Press.

Asiedu, E. (2001). On the Determinants of Foreign Direct Investment to Developing Countries: Is Africa Different? World Development, 30(1), 107-19.

Baier, S. L., & Bergstrand, J. H. (2001). The Growth of World Trade: Tariffs, Transport Costs, and Income Similarity. Journal of International Economics, 53(1), 1-27.

Baltagi, B. H. (2005). Econometric Analysis of Panel Data (3rd ed.). Chichester: John Wiley& Sons Ltd.

Bayoumi, T., Isard, P., Symansky , S. A., & Ito, T. (1996). Exchange Rate Movements and their Impact on Trade and Investment in the Apec Region. IMF Occasional Paper, No. 145.

Bellak, C., Leibrecht, M., & Damijan, J. P. (2009). Infrastructure Endowment and Corporate Income Taxes as Determinants of Foreign Direct Investment in Central and Eastern European Countries. The World Economy, 32(2), 267-90.

Bénassy-Quéré, A., Coupet, M., & Mayer, T. (2007). Institutional Determinants of Foreign Direct Investment. World Economy, 30(5), 764-82.

Bénassy-Quéré, A., Fontagné, L., & Lahrèche-Révill, A. (2003). Tax Competition and Foreign Direct Investment. CEPII Research Center Working Paper Series, No. 2003-07.

Bevan, A., & Estrin, S. (2004). The Determinant of Foreign Direct Investment into Transition Countries. Journal of Comparative Economics, 32(4), 775-87.

Brainard, S. L. (1993b). An Empirical Assessment of the Factor Proportions Explanation of Multinational Sales. NBER Working Paper Series, No. 4583.

Brainard, S. L. (1997). An Empirical Assessment of the Proximity-concentration Trade-off Between Multinational Sales and Trade. The American Economic Review, 87(4), 520-44.

Buch, C. M., Kokta, R. M., & Piazola, D. (2001). Does the East Get What Would Otherwise Flow to the South? FDI Diversion in Europe. Kiel Working Papers, No.1061, Kiel Institute for the World Economy.

Buckley, P. J., & Casson, M. C. (1976). The Future of the Multinational Enterprise. London: Macmillian.

Campos, N., & Kinoshita, Y. (2003). Why Does FDI Go Where it Goes? New Evidence from the Transition Economies. IMF Working Paper, No.03/228.

Cantwell, J. (1991). A Survey of Theories of International Production. In N. C. Pitelis, & R. Sugden (Eds.), The Nature of the Transnational Firm (pp. 16-58). London: Routledge.

Carr, D. L., Markusen, J. R., & Mask, K. E. (2001). Estimating the Knowledge-Capital Model of the Multinational Enterprise. The American Economic Review, 91(3), 693-708.

Carstensen, K., & Toubal, F. (2004). Foreign Direct Investment in Central and Eastern European Countries: A Dynamic Panel Analysis. Journal of Comparative Economics, 32(1), 3-22.

Caves, R. (1974). Multinational Firms, Competition, and Productivity in Host-Country Markets. Economica, New Series, 41(162), 176-93.

CBRT. (2009, November 18). International Investment Position (in Turkish: Uluslararasi Yatirim Pozisyonu). Retrieved December 20, 2009a, from Balance of Payments and International Investment Position (in Turkish: Odemeler Dengesi Istatistikleri ve Uluslararasi Yatirim Pozisyonu): http://www.tcmb.gov.tr/odemedenge/uyp.xls

Cheng, I., & Wall, H. (2005). Controlling for Heterogeneity in Gravity Models of Trade. Federal Reserve Bank of St. Louis Review, 87(1), 49-63.

Cheng, L. K., & Kwan, Y. K. (2000). What are the Determinants of the Location of Foreign Direct Investment? The Chinese Experience. Journal of International Economics, 51, 379-400.

Clausing, K., & Dorobantu, C. (2005). Re-entering Europe: Does European Union Candidacy Boost Foreign Direct Investment? Economics of Transition, 13(1), 77-103.

Coughlin, C. C., & Segev, E. (2000). Foreign Direct Investment in China: A Spatial Econometric Study. World Economy, 23(1), 1-23.

Culem, C. G. (1988). The Locational Determinants of Direct Investment among Industrialised Countries. European Economic Review, 32(4), 885-904.

Disdier, A., & Mayer, T. (2004). How Different is Eastern Europe? Structure and Determinants of Location Choices by French Firms in Eastern and Western Europe. Journal of Comparative Economics, 32(2), 280-96.

Drukker, D. M. (2003). Testing for Serial Correlation in Linear Panel-Data Models. The Stata Journal, 3(2), 1-10.

Dunning, J. H. (1973). The Determinants of International Production. Oxford Economic Papers, 25, 289-336.

Dunning, J. H. (1979). Explaining Changing Patterns of International Production: In Defense of the Eclectic Theory. Oxford Bulletin of Economics and Statistics, 41(4), 269-93.

Dunning, J. H. (1980). Towards an Eclectic Theory of International Production: Some Empirical Tests. Journal of International Business Studies, 11(1), 9–31.

Dunning, J. H. (1998). Location and the Multinational Enterprise: A Neglected Factor? Journal of International Business Studies, 29(1), 45-66.

Egger, P. (2000). A Note on the Proper Econometric Specification of the gravity Equation. Economics Letters, 66(1), 25-31.

Egger, P., & Winner, H. (2006). How Corruption Influences Foreign Direct Investment: A Panel Data Study. Economic Development and Cultural Change, 54(2), 459–86.

Erdal, F., & Tatoglu, E. (2002). Locational Determinants of FDI in an Emerging Market Economy: Evidence from Turkey. Multinational Business Review, 10(1), 7-21.

Erdilek, A. (1982). Direct Foreign Investment in Turkish Manufacturing: An analysis of the Conflicting Objectives and Frustrated Expectations of a Host Country. Tuebingen: J. C. B. Mohr.

Fan, J. H., Morck, R., Xu, L. C., & Yeung, B. Y. (2007). Does “Good Government” Draw Foreign Capital? Explaining China's Exceptional Foreign Direct Investment Inflow. World Bank Policy Research Working Paper, No. 4206.

Fehrs, M., & Axelrod, M. (2006). Democracy Unpacked: How Democratic Constraint Leads to Trade Liberalization. Paper Presented at the Annual Meeting of the American Political Science Association, Marriott, Loews Philadelphia, and the Pennsylvania Convention Center. Philadelphia, PA: Available from Duke University: http://www.duke.edu/~mbf3/ Democracy%20Unpacked%20APSA06-1.pdf.

Gast, M., & Herrmann, R. (2008). Determinants of FDI of OECD Countries 1991-2001. International Economic Journal, 22(4), 509-24.

Globerman, S., & Shapiro, D. (2002). Global Foreign Direct Investment Flows: the Role of Governance Infrastructure. World Development, 30(11), 1899-919.

Goldberg, L. S., & Kolstad, C. D. (1995). Foreign Direct Investment, Exchange Rate Variability and Demand Uncertainty. International Economic Review, 36(4), 855-73.

Gover, Z. T. (2005). The impact of FDI on International Trade: Evidence from Turkey (in Turkish: Dogrudan Yabanci Yatirimlarin Uluslararasi Ticarete Etkileri: Türkiye Degerlendirmesi). Ankara: Hazine Mustesarligi (Undersecreteriat of Treasury).

Graham, E. M. (1978). Transnational Investment by Multinational Firms: A Rivalistic Phenomenon. Journal of Post-Keynesian Economics, 1(1), 82-99.

Gramlich, E. M. (1994). Infrastructure Investment: A Review Essay. Journal of Economic Literature, 32(3), 1176–96.

Greene, W. H. (2003). Econometric Analysis (5th ed.). New Jersey: Prentice Hall.

Halicioglu, F. (2001). An Econometric Analysis of Foreign Direct Investments Flows into Turkey from the Major Global Regions: 1975-1999. Paper Presented at International Conference in Economics V,. Ankara: Economic Research Center, Middle East Technical University.

Hausman, J. A. (1978). Specification Tests in Econometrics. Econometrica, 46(6), 1251-1271.

Helpman, E. (1987). Imperfect Competition and International Trade: Evidence from Fourteen Industrial Countries. Journal of the Japanese and International Economies, 1(1), 62-81.

Hummels, D., & Lugovskyy, V. (2006). Are matched partner trade statistics a usable measure of transportation costs? Review of International Economics, 14(1), 69-86.

Hymer, S. H. (1960). The International Operations of National Firms: A Study of Direct Foreign Investment. PhD Thesis Submitted: Massachusetts Institute of Technology, Department of Economics.

IMF Statistics Department. (2009a). Direction of Trade Statistics Yearbook: 2008. Retrieved Jan 10, 2009, from ESDS International, University of Manchester: http://esds80.mcc.ac.uk/wds_dots/

Khadaroo, J., & Seetanah, B. (2009). The Role of Transport Infrastructure in FDI: Evidence from Africa using GMM Estimates. Journal of Transport Economics and Policy (JTEP), 43(3), 365-84.

Kindleberger, C. P. (1969). American Business Abroad. New Haven: Yale University Press.

Knickerbocker, F. (1973). Oligopolistic Reaction and Multinational Enterprise. Cambridge: Harvard University Press.

Kumar, N. (1994). Determinants of Export Orientation of Foreign Production by U.S. Multinationals: An Inter-Country Analysis. Journal of International Business Studies, 25(1), 141–56.

Kumar, N. (1998). Multinational Enterprises, Regional Economic Integration, and Export-Platform Production in the Host Countries: An Empirical Analysis for the US and Japanese Corporations. Review of World Economics, 134(3), 450-83.

Kumar, N. (2000). Explaining the Geography and Depth of International Production: The Case of US and Japanese Multinational Enterprises. Review of World Economics, 136(3), 442-77.

Kumar, N. (2002). Infrastructure Availability, Foreign Direct Investment Inflows and Their Export-Orientation: A Cross-Country Exploration. RIS Discussion Paper, No. 26.

Limao, N., & Venables, A. J. (2001). Infrastructure, Geographical Disadvantage and Transport Costs. World Bank Economic Review, 15(3), 451-79.

Loree, D., & Guisinger, S. E. (1995). Policy and Non-Policy Determinants of U.S. Equity Foreign Direct Investment. Journal of International Business Studies, 26(2), 281-99.

Markusen, J. R. (1995). The Boundaries of Multinational Enterprises and the Theory of International Trade. Journal of Economic Perspectives, 9(2), 169-89.

Markusen, J. R., & Maskus, K. E. (2002). Discriminating Among Alternative Theories of the Multinational Enterprise. Review of International Economics, 10(4), 694-707.

Mátyás, L. (1998). The Gravity Model: Some Econometric Considerations. World Economy, 21(3), 397-40.

Mundell, R. A. (1957). International Trade and Factor Mobility. American Economic Review, 47(3), 321-35.

Neumayer, E., & Spess, L. (2005). Do bilateral Investment Treaties Increase Foreign Direct Investment to Developing Countries? World Development, 33(10), 1567-85.

OECD. (2008). International Direct Investment Statistics Vol. 2007 Release 1 [online]. Retrieved March 12, 2009, from ESDS International, (MIMAS) University of Manchester

Quazi, R., & Mahmud, M. (2006). Determinants of Foreign Direct Investment in South Asia. The International Journal of Business and Public Administration, 3(1), 1-13.

Resmini, L. (2000). The Determinants of Foreign Direct Investment into the CEECs: New Evidence from Sectoral Patterns. The Economics of Transition, 8(3), 665-89.

Root, F., & Ahmed, A. (1979). Empirical Determinants of Manufacturing Direct Foreign Investment Developing Countries. Economic Development and Cultural Change, 27(4), 751–67.

RTPMUT. (2009, June). Foreign Direct Investments in Turkey, 2008. Retrieved August 11, 2009, from Foreign Direct Investments in Turkey: http://www.treasury.gov.tr/irj/go/km/docs/documents/Treasury%20Web/Research%26Data/Reports/Foreign%20Investment%20Reports/June%202009-%20Foreign%20Direct%20Investments%20in%20Turkey%202008.pdf

Rugman, A. M. (1975). Motives for Foreign Investment: The Market Imperfections and Risk Diversification Hypotheses. Journal of World Trade Law, 9(Semptember/October), 567-73.

Sayek, S. (2007). FDI in Turkey: The Investment Climate and EU Affects. The Journal of International Trade and Diplomacy, 1(2), 105-138.

Schmitz, A., & Bieri, J. (1972). EEC tariffs and US Direct Investment. European Economic Review, 3(3), 259–70.

Swedenborg, B. (1979). The Multinational Operations of Swedish Firms: Analysis of Determinants and Effects. Stockholm Industrial Institute of Economic and Social Research, Working Paper.

Tatoglu, E., & Glaister, K. W. (2000). Dimensions of Western Foreign Direct Investment in Turkey. Westport: Quorum Books.

The World Bank. (2008). World Development Indicators (WDI): 2008. Retrieved from [online]. Retrieved December 5-11, 2008, from ESDS International, (MIMAS) University of Manchester

UNCTAD. (2007). World Investment Report 2007: Transnational Corporations, Extractive Industries and Development. New York and Geneva: United Nations.

UNCTAD. (2008). Major FDI Indicators (WIR 2008). Retrieved March-April 2009, from WIR: http://stats.unctad.org/FDI/TableViewer/tableView.aspx?ReportId=3084

Wheeler, D., & Mody, A. (1992). International Investment Location Decisions: The Case for U.S. Firms. Journal of International Economics, 33(1-2), 57-76.

Wooldridge, J. M. (2002). Econometric Analysis of Cross Section and Panel Data. Cambridge, MA: MIT Press: MIT Press.

Yannopoulos, G. N. (1992). Multinational Corporations and the Single European Market. In Multinational Investment in Modern Europe: Strategic Interaction in the Integrated Community (pp. 329-48). Aldershot: Edward Elgar.

Zhang, K. H., & Markusen, J. R. (1999). Vertical Multinationals and Host-Country Characteristics. Journal of Development Economics, 59(2), 233-52.