Analyzing FDI trends in emerging markets: Turkey vs CSEE and the Middle East

Purpose – This paper aims to deconstruct the economic position of Turkey in comparison to its immediate neighbors, Central and South‐Eastern Europe (CSEE), and the Middle East, with a specific emphasis on Japanese Foreign Direct Investment (FDI). Design/methodology/approach – Several determinants of FDI intensity identified in the extant research are used to conduct this comparative analysis. The data is based on the foreign subsidiaries of Japanese firms. Findings – The results confirm the ambiguous position of Turkey. It enjoys a high Gross Domestic Product growth despite a relatively low openness to trade. From cultural and political risk perspectives it is closer to the Middle East than to CSEE. In spite of its location advantages, the institutional environment continues to be an impediment, preventing Turkey from realizing its full investment potential. Thus, Japanese investors choose to invest in CSEE economies, which are slightly closer culturally to Japan, and significantly less risky. Research limitations/implications – The descriptive nature of this study is due to a limited sample size. The comparison of a country with two regions might be too simplistic. Focus on Japanese FDI limits generalizability. Practical implications – The results of this analysis confirm the importance of continuous market liberalization and political stabilization measures for attracting FDI. Government policies in the region should not only attempt to remedy local deficiencies but strive to create a comprehensive institutional framework. Originality/value – This study contributes to the emerging market research in the region with paucity of data. Although comparisons among various European regions are common, such tri‐lateral analyses are rare.