Foreign Direct Investment as a Determining Factor in Turkey’s Export Performance

Abstract

Export growth in Turkey has been much faster than GDP growth over the past few decades. Although in the last several years Turkey has been experiencing a constant growth of both exports and foreign direct investments as a result of marketoriented reform process, often associated with European Union (EU) accession, the export performance as well as the inflow of foreign direct investment (FDI) to Turkey is not satisfactory. Despite increasing inflows of FDI especially in recent years there has not been any attempt to assess its contribution to Turkey’s export performance—one of the channels through which FDI influences growth. Using annual data for 1982–2009 this paper investigates the determinants of Turkey’s export performance in a simultaneous equation framework (3SLS). Results suggest that the real appreciation of the Turkish Lira adversely affects Turkey’s export performance. Export supply is positively related to the domestic relative price of exports while the higher domestic demand reduces export supply. Foreign investment appears to have statistically significant impact on export performance as well as its coefficient has a positive sign. Also, the statistical adequacy of the models used is supported by the following diagnostic tests.

Keywords

• Exports
• Foreign direct investment
• FDI
• Exchange rates
• Simultaneous equation
• Turkey