Dynamic Patterns and Determinants of Foreign Direct Investment in Türkiye: A Sectoral Panel Data Analysis

Abstract

This study investigates the dynamic determinants of foreign direct investment (FDI) across six key economic sectors in Türkiye—data processing, electricity, gas and air conditioning, finance and insurance, manufacturing, services, and trade—covering the period 2009–2021. This research investigates the current lack of knowledge about how sector-specific features and cost elements affect foreign direct investment (FDI) distribution in an emerging market. The research investigates FDI inflows between sectors through static and dynamic econometric approaches to identify their long-term trends and various responses. The research design uses Panel Vector Autoregression (Panel VAR) and System Generalized Method of Moments (System GMM) estimators to handle endogeneity, dynamic persistence, and cross-sectoral interdependence in the data. The research demonstrates that FDI inflows maintain strong persistence because previous investments create a path-dependent system, which determines present-day inflows. The manufacturing and energy sectors, along with other cost-intensive sectors, experience a strong negative relationship between sector-specific costs (COST) and FDI. The study reveals that INPUT loses its statistical significance when researchers implement adjustments for dynamic effects and cost variables. The investment climate of Türkiye requires policy actions to reduce production expenses, improve infrastructure standards, and maintain stable institutions and macroeconomic conditions. This research adds new knowledge to existing literature through its analysis of FDI behavior in emerging markets using sector-specific data and time-dependent analysis to fill the gap between traditional cross-sectional and time-series studies.

Keywords

• Foreign direct investment
• Panel VAR
• System GMM
• Sectoral dynamics

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