An Econometric Analysis of Foreign Direct Investment Flows into Turkey from Major Global Regions: 1975-1999

This paper analyses the determinants of inward foreign direct investment (FDI) flows into Turkey from four major geographical regions and at aggregate level with a special emphasis on Turkey’s application to the European Union (EU) to become a full member in 1987. In contrast to previous studies this paper divides the inward FDI flows into Turkey from four major trading blocks and estimates separate FDI function for each region in addition to the aggregate FDI function. It is found that Turkey has experienced both “investment creation and diversion” effects as a result of her membership application to the EU in addition to the market size hypothesis. This paper also compares and contrasts the short and long run FDI functions of Turkey by the source of geographical regions and at aggregate level and draws conclusions from there.