Institutional quality and FDI inflows: an empirical investigation for Turkey

Foreign direct investment (FDI) inflows are fundamental and strong drivers of the global economic system. Mostly for the developing countries in several geographic region, the attraction of FDI is considered a catalyst for economic growth, under the condition that the recipient economies present institutional conditions that encourage foreign investors. The present study aims at providing empirical evidence and at investigating the impact of institutional quality on the amount of FDI inflows during 2002 – 2017, focusing on the case of Turkey. The country applied institutional reform programs and made significant efforts in order to attract more foreign investors. The present paper contributes to the existing knowledge since it is the first empirical research to study the impact of institutional quality indicators on the amount of FDI inflows in Turkey, using time series analysis, as well as panel data analysis in selected countries of the region. The study concludes that upgraded quality of the studied institutional indicators in Turkey, except for government effectiveness, during the specific time period is positively related to FDI inflows. Suggestions for future research and policy implications are discussed.