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THE RELATIONSHIP BETWEEN FOREIGN DIRECT INVESTMENT AND CAPITAL FORMATION IN EMERGING ECONOMIES: "THE CASE OF THE TURKISH ECONOMY"

Year 2010, Volume: 5 Issue: 1, 41 - 52, 01.06.2010

Abstract

The relationship between foreign direct investment (FDI) and gross fixed capital formation (GFCF) has revealed noteworthy interest and been increasingly attracting attention from researchers, practitioners, as well as academics. In line with this increasing interest, this paper tries to scrutinize the relationship between foreign direct investment and gross fixed capital formation in Turkey. Using Zellner's Seemingly Unrelated Regression (SUR) method as a system of two simultaneous equations and covering the data from 1970 to 2008, the empirical findings of the study reveal that capital formation is positively associated with FDI, along with domestic debt and capital market financing, but negatively correlated with stock market liquidity. The results also confirm that there is no statistically significant link between capital formation and foreign credit or state subsidies. This study finally proves that FDI is a substitute for domestic credit but is complementary with foreign credit and privatization revenues.

References

  • R. Barrel and D. Holland (2000), “Foreign direct investment and enterprise restructuring in central Europe”, The Economics of Transition 8(2), 477-504.
  • A.A. Bevan and S. Estrin (2000), “The Determinants of foreign direct investment in transition economies”, WDI Working paper, no 342.
  • E. Borensztein, E.J. DeGregorio, and J.-W. Lee (1998), “How does foreign direct investment affect economic growth”, Journal of International Economics 45, pp. 115-135.
  • P. J. Buckley, J. Clegg and C. Wang (2004), "The relationship between inward foreign direct investment and the performance of domestically-owned Chinese manufacturing industry", Multinational Business Review, 12(3):23-40.
  • _______ (2006), "Inward FDI and host country productivity: Evidence from China’s electronics industry", Transnational Corporations, 15(1):13-37.
  • R. E. Caves (1982), "Multinational Enterprises and Economic Analysis", Cambridge, MA:Cambridge University Press.
  • J. H. Dunning (1992), "Multinational Enterprises and the Global Economy". Workingham: Addison-Wesley.
  • R. Findlay (1978), "Relative backwardness, direct foreign investment, and the transfer of technology: A simple dynamic model", Quarterly Journal of Economics, 92(1):1-16.
  • S. H. Hymer (1976), "The International Operations of National Firms: A Study of Direct Investment", Cambridge, MA: MIT Press.
  • M. Khawar (2005), "Foreign direct investment and economic growth: a crosscountry analysis", Global Economy Journal, 5(1):1-13.
  • Y. Kinoshita and N.F. Campos (2001), “Agglomeration and determinants of foreign direct investment in transition economies”, mimeo.
  • J. Konings (2000), “Effects of direct foreign investment on domestic firms: Evidence from firm level panel data in emerging economies”, WDI working paper, no 344.
  • P. R. Krugman (1995), "Growing world trade: Causes and consequences", Brookings Papers on Economic Activity, 1:327-376.
  • S. Lall (1978), "Transnationals, domestic enterprises, and industrial structure in host LDCs: A survey", Oxford Economic Paper, 30(July):217-248.
  • H.P. Lankes and A.J. Venables (1996), “Foreign direct investment in economic transition: The changing pattern of investments”, The Economics of Transition; 4(2); 331-47.
  • R.E. Lipsey (2000), “Interpreting developed countries' foreign direct investment”, NBER Working paper no. 7810, July 2000.
  • Y. Luo (2000), "MNCs in China: Benefiting from Structural Transformation", Copenhagen: Copenhagen Business School Press.
  • J. Markusen (1998), “Trade versus investment liberalisation”, NBER working paper no. 6231.
  • K.E Meyer and C. Pind (1999), “The slow growth of foreign direct investment in the Soviet Union successor states”, The Economics of Transition 7(1);201-214. OECD (2001), OECD Economic Surveys: Czech Republic, Paris, France, July 2001.
  • T. Ozawa (1992), "Foreign direct investment and economic development", Transnational Corporations, 1:27-54.
  • M. W. Peng (2000), "Business Strategies in Transition Economies" Thousand Oaks, CA: Sage.
  • A. Repkine, and P. Walsh (1998), “European trade and foreign direct investment U-shaping industrial output in central and eastern Europe - theory and evidence”, IMF Working Paper WP/98/150; October 1998.
  • L. Resmini (2000), “The determinants of foreign direct investment in the CEECs: New evidence from sectoral patterns”, The Economics of Transition 8(3): 665-689.
  • A. G. Roy and H. F. Van den Berg (2006), "Foreign direct investment and economic growth: a time-series approach", Global Economy Journal, 6(1): 1-19.
  • T. Ulussever (2004), "Foreign Direct Investment in Emerging Markets: The Case of the Turkish Economy”, The Journal of Economics, 30(2): 51-67
  • T. Ulussever (2008), "The Macroeconomic Determinants of Foreign Direct Investment in the Turkish Economy", The Journal of Social and Economic Development, 10 (1): 50-67
  • F. Van Loo (1977), "The effect of foreign direct investment on investment in Canada", Review of Economics and Statistics, 59(4): 474-481.

THE RELATIONSHIP BETWEEN FOREIGN DIRECT INVESTMENT AND CAPITAL FORMATION IN EMERGING ECONOMIES: "THE CASE OF THE TURKISH ECONOMY"

Year 2010, Volume: 5 Issue: 1, 41 - 52, 01.06.2010

Abstract

 The relationship between foreign direct investment (FDI) and gross fixed capital formation (GFCF)
has revealed noteworthy interest and been increasingly attracting attention from researchers, practitioners, as
well as academics. In line with this increasing interest, this paper tries to scrutinize the relationship between
foreign direct investment and gross fixed capital formation in Turkey. Using Zellner's Seemingly Unrelated
Regression (SUR) method as a system of two simultaneous equations and covering the data from 1970 to 2008,
the empirical findings of the study reveal that capital formation is positively associated with FDI, along with
domestic debt and capital market financing, but negatively correlated with stock market liquidity. The results
also confirm that there is no statistically significant link between capital formation and foreign credit or state
subsidies. This study finally proves that FDI is a substitute for domestic credit but is complementary with foreign
credit and privatization revenues. 

References

  • R. Barrel and D. Holland (2000), “Foreign direct investment and enterprise restructuring in central Europe”, The Economics of Transition 8(2), 477-504.
  • A.A. Bevan and S. Estrin (2000), “The Determinants of foreign direct investment in transition economies”, WDI Working paper, no 342.
  • E. Borensztein, E.J. DeGregorio, and J.-W. Lee (1998), “How does foreign direct investment affect economic growth”, Journal of International Economics 45, pp. 115-135.
  • P. J. Buckley, J. Clegg and C. Wang (2004), "The relationship between inward foreign direct investment and the performance of domestically-owned Chinese manufacturing industry", Multinational Business Review, 12(3):23-40.
  • _______ (2006), "Inward FDI and host country productivity: Evidence from China’s electronics industry", Transnational Corporations, 15(1):13-37.
  • R. E. Caves (1982), "Multinational Enterprises and Economic Analysis", Cambridge, MA:Cambridge University Press.
  • J. H. Dunning (1992), "Multinational Enterprises and the Global Economy". Workingham: Addison-Wesley.
  • R. Findlay (1978), "Relative backwardness, direct foreign investment, and the transfer of technology: A simple dynamic model", Quarterly Journal of Economics, 92(1):1-16.
  • S. H. Hymer (1976), "The International Operations of National Firms: A Study of Direct Investment", Cambridge, MA: MIT Press.
  • M. Khawar (2005), "Foreign direct investment and economic growth: a crosscountry analysis", Global Economy Journal, 5(1):1-13.
  • Y. Kinoshita and N.F. Campos (2001), “Agglomeration and determinants of foreign direct investment in transition economies”, mimeo.
  • J. Konings (2000), “Effects of direct foreign investment on domestic firms: Evidence from firm level panel data in emerging economies”, WDI working paper, no 344.
  • P. R. Krugman (1995), "Growing world trade: Causes and consequences", Brookings Papers on Economic Activity, 1:327-376.
  • S. Lall (1978), "Transnationals, domestic enterprises, and industrial structure in host LDCs: A survey", Oxford Economic Paper, 30(July):217-248.
  • H.P. Lankes and A.J. Venables (1996), “Foreign direct investment in economic transition: The changing pattern of investments”, The Economics of Transition; 4(2); 331-47.
  • R.E. Lipsey (2000), “Interpreting developed countries' foreign direct investment”, NBER Working paper no. 7810, July 2000.
  • Y. Luo (2000), "MNCs in China: Benefiting from Structural Transformation", Copenhagen: Copenhagen Business School Press.
  • J. Markusen (1998), “Trade versus investment liberalisation”, NBER working paper no. 6231.
  • K.E Meyer and C. Pind (1999), “The slow growth of foreign direct investment in the Soviet Union successor states”, The Economics of Transition 7(1);201-214. OECD (2001), OECD Economic Surveys: Czech Republic, Paris, France, July 2001.
  • T. Ozawa (1992), "Foreign direct investment and economic development", Transnational Corporations, 1:27-54.
  • M. W. Peng (2000), "Business Strategies in Transition Economies" Thousand Oaks, CA: Sage.
  • A. Repkine, and P. Walsh (1998), “European trade and foreign direct investment U-shaping industrial output in central and eastern Europe - theory and evidence”, IMF Working Paper WP/98/150; October 1998.
  • L. Resmini (2000), “The determinants of foreign direct investment in the CEECs: New evidence from sectoral patterns”, The Economics of Transition 8(3): 665-689.
  • A. G. Roy and H. F. Van den Berg (2006), "Foreign direct investment and economic growth: a time-series approach", Global Economy Journal, 6(1): 1-19.
  • T. Ulussever (2004), "Foreign Direct Investment in Emerging Markets: The Case of the Turkish Economy”, The Journal of Economics, 30(2): 51-67
  • T. Ulussever (2008), "The Macroeconomic Determinants of Foreign Direct Investment in the Turkish Economy", The Journal of Social and Economic Development, 10 (1): 50-67
  • F. Van Loo (1977), "The effect of foreign direct investment on investment in Canada", Review of Economics and Statistics, 59(4): 474-481.
There are 27 citations in total.

Details

Primary Language English
Journal Section Articles
Authors

Dr.talat Ulussever

Publication Date June 1, 2010
Published in Issue Year 2010 Volume: 5 Issue: 1

Cite

APA Ulussever, D. (2010). THE RELATIONSHIP BETWEEN FOREIGN DIRECT INVESTMENT AND CAPITAL FORMATION IN EMERGING ECONOMIES: "THE CASE OF THE TURKISH ECONOMY". Bilgi Ekonomisi Ve Yönetimi Dergisi, 5(1), 41-52.