Examination of the relationship between political and economic factors and fixed capital investments: The example of Turkish manufacturing sector

Abstract

Purpose- The factors affecting economic growth have been the subject of many studies from past to present. Fixed capital investments are long-term investment areas and have an important share in the economic growth of countries. One of the most important areas among these investments is the manufacturing sector. On the other hand, there are some elements that create trust in an economy; these are mainly political stability, rule of law, accountability and the highest level of control of corruption. In the environment where these elements are provided, an economic environment is created that will encourage both domestic and foreign investors to invest in that country. In this study, it is aimed to examine the long-term interaction of variables related to corruption control, political stability and rule of law on the change in fixed capital investments in the manufacturing sector in Turkey. Methodology- The change in the annual data of the manufacturing sector in Turkey between the years 2010-2021 is taken as the dependent variable. Political stability, rule of law and corruption control data obtained from the World Governance Index database were used as independent variables. To determine the existence of a long-term co-change between the variables, the ARDL limit test was applied on the data. Findings- In the research findings, it has been determined that there is a long-term and significant relationship between the annual changes in fixed capital investments in the manufacturing sector and the changes in the independent variables such as political stability, rule of law and corruption control. According to the results of the research, 1% change in corruption control increases the fixed capital investments in the manufacturing sector by 2%. Likewise, the political stability in the country affects fixed capital investments in the manufacturing sector with an increase of 0.4%. Positive change in perception about the rules of law in the country increases the fixed capital investments in the manufacturing sector by 1.5%. Conclusion- While this study emphasizes the importance of fixed capital investments, it has obtained results that support the view that economic and political stability in the country will affect these investments. According to the results of the study, fixed capital investments in the manufacturing sector are affected by the political stability of the country, the rule of law and the efficiency of corruption control in the long term. Keywords: Fixed capital investments, manufacturing sector, economic confidence, political stability, ARDL limit test JEL Codes: D63, D90, L60, O10