Foreign Direct Investment and Labor Productivity: Evidence from Industrial Firms in Türkiye

Year 2023, , 12 - 21, 26.12.2023

Aytuğ Sözüer

https://doi.org/10.26650/imj.2023.95.1335148

Abstract

This study aims to determine the presence of foreign direct investment (FDI) spillovers in Türkiye by examining the labor productivity of manufacturing firms. Based on relevant theoretical frameworks and empirical evidence, the research compares foreign-capitalized and domestic companies in Türkiye in 27 industries between 2011 and 2019. The analysis uses a multiple crosssectional design based on data from the Istanbul Chamber of Industry’s annual reports. Throughout the chosen period, consecutive equivalence tests show that labor productivity is comparable among firms in the same industry with both domestic and foreign equity. This finding reveals a convergence in labor productivity levels between foreign-capitalized and domestic firms, confirming foreign ownership’s positive influence on Türkiye’s manufacturing sector. The finding is consistent with prior research conducted in the Turkish context and supports the notion that FDI facilitates intra-industry spillovers, contributing to the nation’s overall labor productivity growth under endogenous growth theory principles. The study highlights several avenues for harnessing the benefits of FDI for Türkiye’s economic growth and competitiveness in terms of policy and practice recommendations. Policymakers are encouraged to foster a stable and appealing business environment for foreign capital by implementing regulatory reforms and streamlining bureaucracy. The emphasis on technology transfer and knowledge spillovers should be a priority, with incentives for research collaborations and education programs to enhance the skills of the domestic workforce. Regional development initiatives and sector-specific policies can further optimize the impact of FDI. In addition, domestic companies can also play a pivotal role by engaging in collaborations, investing in human capital, adopting advanced technologies, and embracing a culture of continuous improvement to leverage FDI-induced productivity gains. Future research should look at sector-specific analyses, regional disparities, firm heterogeneity, and the effectiveness of existing FDI-related policies, all of which will contribute to a more comprehensive understanding of FDI’s role in Türkiye’s labor productivity, competition, and economic development.

JEL Classification : F23 , J24 , O19

Keywords

FDI, spillovers, factor productivity

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