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Effects of Sovereign Credit Ratings on Foreign Direct Investment Inflows: Evidence from Turkey

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  • Yılmaz Bayar
  • Cüneyt Kılıc

Abstract

Foreign direct investment flows began to increase in the world since 1980s in parallel with the technological progress especially in transportation and communication, global competition and financial liberalization. Foreign direct investment inflows began to increase belatedly in Turkey in 2001 due to frequent economic and financial crises and political instability. This study examines the relationship between the sovereign credit ratings of Turkey and foreign direct investment inflows during the period from January 1995 to July 2013 in Turkey by using cointegration, VAR Granger causality, vector error correction model, vector autoregression and impulse-response analyses. We find that there is a positive relationship between foreign direct investment inflows and sovereign credit ratings and the sovereign credit rating by S&P is the predominant one on the foreign direct investment inflows. Moreover this study reveals that there is a two-way causality between sovereign credit ratings by S&P and Fitch and foreign direct investment inflows and a one way causality between sovereign credit ratings by Moody’s and foreign direct investment inflows and a no causality between dummy variable which represents crises and the foreign direct investment inflows.

Suggested Citation

  • Yılmaz Bayar & Cüneyt Kılıc, 2014. "Effects of Sovereign Credit Ratings on Foreign Direct Investment Inflows: Evidence from Turkey," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 4(2), pages 1-7.
    • Handle: RePEc:spt:apfiba:v:4:y:2014:i:2:f:4_2_7
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    Cited by:

    1. Daniel Francois Meyer & Lerato Mothibi, 2021. "The Effect of Risk Rating Agencies Decisions on Economic Growth and Investment in a Developing Country: The Case of South Africa," JRFM, MDPI, vol. 14(7), pages 1-17, June.
    2. Sailesh Tanna & Chengchun Li & Glauco De Vita, 2018. "The role of external debt in the foreign direct investment–growth relationship," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 23(4), pages 393-412, October.
    3. World Bank, 2017. "Indonesia Economic Quarterly, June 2017," World Bank Publications - Reports 30841, The World Bank Group.
    4. Noha Emara & Ayah El Said, 2021. "Sovereign ratings, foreign direct investment and contagion in emerging markets: Does being a BRICS country matter?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(4), pages 5217-5234, October.
    5. Mohammed Kalloub & Ayhan Kapusuzoglu & Nildag Basak Ceylan, 2018. "The Impact Of Basel Iii Adoption By G20 Members On Their Credit Ratings," Eurasian Journal of Economics and Finance, Eurasian Publications, vol. 6(1), pages 47-55.
    6. Nilufer KAYA KANLI & Osman AYDOGUS, 2017. "Ulke Risk Faktorlerinin Dogrudan Yabanci Yatirimlar Uzerindeki Belirleyici Etkisi," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 17(2), pages 179-190.

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