Geopolitical Alignment and Friend-Shoring: Evidence from Turkish Outward Foreign Direct Investment

Geopolitical tensions have increasingly reshaped foreign direct investment (FDI) patterns, leading to “friend-shoring,” whereby investments are redirected toward geopolitically aligned countries. Despite growing attention, empirical evidence on the geopolitical determinants of FDI in emerging economies remains limited. This paper examines whether and how geopolitical alignment affects Turkish outward FDI (OFDI) during 2003–2023. Using panel data and a geopolitical distance measure based on UN voting similarity, the results show that Turkish OFDI declines with increasing geopolitical distance, providing strong evidence of friend-shoring behavior. However, this effect is heterogeneous. It is stronger in emerging markets but can be mitigated by better governance, particularly through stronger corruption control and greater voice and accountability. This paper also demonstrates that geopolitical alignment operates through multiple channels. Turkish OFDI responds not only to the degree of bilateral geopolitical alignment but also to countries’ positions in the US–China rivalry and their bloc affiliations. Finally, the effect of geopolitical alignment weakens after 2018, indicating that the relationship between geopolitics and OFDI evolves along with geopolitical dynamics.