Understanding the Factors That Influence Foreign Direct Investment in Turkey: Exploring the Impact of Country Risks and Geopolitical Risk

Abstract

The primary objective of this study is to investigate the determinants of foreign direct investment, with a specific focus on per capita GDP (GDP), alongside various risk factors including economic risk (ER), financial risk (FR), political risk (PR), and geopolitical risk (GPR), in the context of Turkey. This investigation employs an innovative wavelet methodology to analyze the relationships among these variables. The empirical analysis entails the application of wavelet coherence, as well as multiple wavelet coherence (MWC) and partial wavelet coherence (PWC) techniques, to evaluate the strength and significance of relationships between different time series while considering the influence of other related time series. Utilizing quarterly data spanning from 1988Q1 to 2020Q4, this study seeks to fill a gap in the existing literature by examining the nexus between these factors in both time and frequency domains, a novel approach in this field. The findings from the wavelet coherence analysis reveal that GDP, PR, FR, and ER positively impact FDI inflows, whereas GPR exerts a negative influence across various time and frequency intervals. Moreover, the outcomes of MWC and PWC analyses underscore the significant effects of the control variables on the relationships under investigation. Based on these findings, the study puts forth noteworthy policy implications aimed at fostering a more conducive environment for FDI in Turkey.