THE MACROECONOMIC DETERMINANTS OF FOREIGN DIRECT INVESTMENT IN THE LONG-RUN AND SHORT-RUN IN TURKEY

The aim of this paper is to analyze empirically the relationship between sectoral Foreign Direct Investment (FDI) and macroeconomic variables in Turkey. 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 FDI inflows, 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. Even though real exchange rate is not very effective, it has positive effects in some sectors and negative effects in some sectors. Real GDP has positive effects on agriculture and three sub-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