Does Higher Geopolitical Risk Limits Turkish Foreign Direct Investments ?

Abstract

The acceleration of capital transfers between countries after globalization has increased the importance of foreign direct investments in developing countries. Lack of capital in developing countries such as Turkey, constitute obstacles to investment. In this context, foreign direct investments that will come to the country are important in terms of eliminating the negativities caused by the lack of capital. Foreign direct investments are affected by many factors. One of them is the country's geopolitical risk. In this study, it is aim to investigate the impact of geopolitical risk on foreign direct investment in Turkey by using ARDL Bound Test for the 1998-2018 period. In addition to the geopolitical risk, real exchange rate, labor force, real GDP and savings that affect foreign direct investments were also included in the study. According to the analysis re-sults obtained, while geopolitical risk and labor force had a negative effect on FDI; real GDP, real exchange rate and savings have and positive effect on FDI.

Reflections of Geopolitical Risk on Foreign Direct Investments: The Case of Türkiye

“…Another issue related to the literature is that geopolitical risks are accepted as a parameter that causes negative results for FDI. In terms of the results of the studies, there was a negative correlation between FDI and geopolitical risk in general, while De Angelo et al ( 2010), Rauf et al (2016), Zeng and Li (2019), Asaad et al (2020), Afşar et al (2021), Ayten (2021), Caldara and Iacoviello (2022), Carpenter (2022), Özşahin et al (2022) are studies conducted on a single country. Artciles with a large number of cross-section units, such as many countries or companies, are reported by Chanegriha et al (2017), Dissanayakea et al (2018, Arslan (2019), Dedeoğlu et al (2019), Kim et al (2019), Wang et al (2019), Fania et al (2020, Le and Tran (2021), Luo (2021), Ceyhan and Gulcan (2022), Dastan et al (2022), Li et al (2022), Lu andLiu (2022), Nhuyen et al (2022), Thakkar and Ayub (2022), Busy and Zheng (2023), Feng et al (2023), Yu and Wang (2023).…”

“…The results showed that despite the effect of geopolitical risk on FDI, it affected the components at a different level. Afşar et al (2021) tested whether geopolitical risk affected FDI using some other variables with the ARDL Boundary Test and Granger-Causality analysis in Turkey between 1994 and 2018. The analysis results revealed that geopolitical risk had a negative effect on FDI in Turkey and there was a unidirectional causality from geopolitical risk to FDI.…”

A TVP-VAR assessment of the spillover effects of geopolitical risk shocks on macroeconomic variability: a study of the Ghanaian economy

“…Trade, money flows, and business cycles are just a few of how geopolitical risk may spread its effects. Studies have demonstrated that it can slow down economic development, domestic loans to the private sector, and foreign direct investment [1,38]. Inflation dynamics, currency rates, and the prognosis for the government's budgetary position are impacted by geopolitical risk [25,33].…”