The Effects of Foreign Direct Investment on Turkish Economy

Abstract: This study’s ambition is to investigate the effects of Foreign Direct Investment for Turkey at the individual sector level. To the best of our knowledge, this is the first endeavor to investigate the sector-specific effect of FDI on GDP for Turkey. The main research is carried out by support of basic neo-classical growth theory and new endogenous growth paradigms. The study mainly employs empirical models, such as the panel data estimation, panel cointegration and pooled/panel estimation techniques. Moreover, Granger-Causality, Arellano-Bond Dynamic panel-data estimation with one-step system GMM estimator techniques is indispensable to the accomplishment of this work. By choosing panel estimation technique, the author intends to control unobserved sector-specific effects, and consequently to reduce the omitted variable bias. The essential findings for the study suggest that Foreign Direct Investment contributed growth rate overall positive in Turkish economy. Foreign Direct Investment seems to benefit growth rate most in the Manufacturing, Electricity, Gas and Water, Wholesale and Retail Trade sectors. It justifies that FDI utilizes the labor productivity and consequently the growth rate at the sector-specific level in variety of magnitudes. Moreover, one way causality from FDI to GDP is found.