THE FINANCIAL FACTORS AFFECTING FOREIGN DIRECT INVESTMENTS IN TURKEY

Abstract

There has been a significant increase in foreign direct investments as the world has become a single global village with globalization. In this process, foreign direct investments has increasingly become an important source of economic growth for developing economies. In fact, foreign direct investments leads to significant changes in the production structure through the diffusion of information and technology, as well as increasing employment and production in developing countries. Therefore, developing countries have made great efforts to attract foreign direct investments to their countries. Parallel to the increasing importance of foreign direct investments for developing economies, the factors affecting foreign direct investment inflows have begun to be studied extensively in the economics literature. This study will focus on the financial factors that affect foreign direct investments inflows to Turkey. Accordingly, the effect of global interest rate, stock market index and exchange rate on foreign direct investments inflows in the 2008Q4-2019Q4 period, which includes the period from the beginning of the global crisis to the pandemic, was analyzed by ARDL method. Econometric results show that increases in the global stock market index within the framework of Tobin's Q Theory are an important variable that affects capital inflows to Turkey. On the other hand, changes in the exchange rate affect foreign direct capital inflows positively in the short term and negatively in the long term. In general, no significant relationship was found between developments in global interest rates and foreign direct capital inflows. Thus, empirical findings highlight the changes in the global stock market index among financial indicators as the most important factor affecting foreign direct inflows to Turkey. This fact has revealed the importance of policy options to be designed within the framework of Tobin's Q theory to encourage foreign direct investment inflows to Turkey.