Abstract
This paper examines the structure of foreign direct investment (FDI) flows into Turkey and the Central and Eastern European Countries (CEECs) as well as the other new members of the European Union (EU). Our study has two main parts. Firstly, we investigate the key economic and political factors that have an impact on foreign investment, for example, the macroeconomic performance, the production cost and the size of domestic market. Secondly, we explore the relationship between FDI and trade flows for Turkey, the Czech Republic, Hungary and Poland using the Granger causality methodology.
Highlights
foreign direct investment (FDI) has been increasingly considered as an important incentive to the industrial growth and international competitiveness for developing countries
Our analysis on the causality between FDI and foreign trade is the first attempt to study the existence of any possible link between foreign investment flows and trade in Turkey
The observation that FDI flows to candidate Central and Eastern European Countries (CEECs) doubled in the 1997–99 period lead us to conclude that, following the European Union’s decision in December 2004 to start the negotiations with Turkey in October 2005, Turkey’s European vocation is no longer in doubt and that FDI flows into Turkey will grow exponentially in 2005 and thereafter
Summary
FDI has been increasingly considered as an important incentive to the industrial growth and international competitiveness for developing countries. To be more competitive in this race, countries started to re-structure their political and economic policies by privatizing their public sector establishments and adopting incentive regimes through Investment Promotion Agencies.. Foreign investors prefer countries that have well-functioning market economy and demand minimum bureaucratic obstacles. They compare countries on the basis of their respective pocket list for investment, which includes various information from political and economic stability to taxes, incentives, investment location, logistic costs, personnel costs, presence of skilled labour, costs and condition of infrastructure for transportation, telecommunication and energy. Turkey has always attracted very low inflows of FDI relative to other comparable countries Several reasons for this low performance can be listed as structural barriers, heavy bureaucratic requirements, macroeconomic instability, corruption, political instability and so on.
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