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The Relationship between Sectoral Foreign Direct Investment and Macroeconomic Variables: Empirical Evidence from Turkey

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  • Bahar Erdal

Abstract

The aim of this paper is to analyze empirically the relationship between sectoral Foreign Direct Investment (FDI) and macroeconomic variables in the long-run and short-run in Turkey for the period from 2005 to 2016. The cointegration analysis and error correction models are used to test long-run relationship and short-run effects respectively. It is expected that the using of sectoral level data may disentangle the relationship FDI and macroeconomic variables. Taking into consideration the characteristics of the FDI flows into Turkey, real exchange rate, real GDP, openness of the economy and real interest rate are chosen as macroeconomic variables. The empirical results show that openness of the economy to international markets is an important variable on the FDI flows into Turkey. The sign of real exchange rate varies depending on the type of sectors as expected. Real GDP has positive effects on agriculture and three sectors. Real interest rate has positve effects on total FDI, financial and insurance activities and banking sectors that have the highest shares in total FDI.JEL classification numbers: F20, F21, F31, C12, C32Keywords: foreign direct investment, real exchange rate, unit root test, cointegration analysis, error correction models.

Suggested Citation

  • Bahar Erdal, 2018. "The Relationship between Sectoral Foreign Direct Investment and Macroeconomic Variables: Empirical Evidence from Turkey," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 8(3), pages 1-3.
    • Handle: RePEc:spt:apfiba:v:8:y:2018:i:3:f:8_3_3
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    References listed on IDEAS

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    1. Kenneth A. Froot & Jeremy C. Stein, 1991. "Exchange Rates and Foreign Direct Investment: An Imperfect Capital Markets Approach," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 106(4), pages 1191-1217.
    2. Jiangyan Yu & Mr. James P Walsh, 2010. "Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach," IMF Working Papers 2010/187, International Monetary Fund.
    3. Root, Franklin R & Ahmed, Ahmed A, 1979. "Empirical Determinants of Manufacturing Direct Foreign Investment in Developing Countries," Economic Development and Cultural Change, University of Chicago Press, vol. 27(4), pages 751-767, July.
    4. Bruce Blonigen, 2005. "A Review of the Empirical Literature on FDI Determinants," Atlantic Economic Journal, Springer;International Atlantic Economic Society, vol. 33(4), pages 383-403, December.
    5. Schneider, Friedrich & Frey, Bruno S., 1985. "Economic and political determinants of foreign direct investment," World Development, Elsevier, vol. 13(2), pages 161-175, February.
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    Cited by:

    1. Yongmin Zhang & Yong Chen & Renyi Zhang & Wenjun Tu & Yingxue Zhao, 2024. "Outward foreign direct investment productivity along the belt and road," Economics and Politics, Wiley Blackwell, vol. 36(2), pages 959-988, July.

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    More about this item

    Keywords

    foreign direct investment; real exchange rate; unit root test; cointegration analysis; error correction models.;
    All these keywords.

    JEL classification:

    • F20 - International Economics - - International Factor Movements and International Business - - - General
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General

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