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The determinants of FDI in Turkey: A Markov Regime-Switching approach

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  • Bilgili, Faik
  • Tülüce, Nadide Sevil Halıcı
  • Doğan, İbrahim

Abstract

This paper considers movements of Foreign Direct Investments (FDI) in Turkey, and therefore, to understand the dynamics of FDI, runs several nonlinear FDI equations in which the basic determinants of FDI in Turkey are determined through Markov Regime-Switching Models (MSMs). The statistical properties of Markov Regime-Switching time series models are more desirable than those of conventional time series or panel regression models. Through these properties of MSMs, i) one can observe structural changes, if they exist, in FDI equations through time, ii) if, in fact, the true FDI regression equation follows a nonlinear relationship, MSMs fit data better than the linear models. This paper eventually follows maximum likelihood methodology of Markov Regime-Switching Model (MSM) to search for the possible structural changes in level and/or trends and possible changes in parameters of independent variables of FDI–MSM equations through the transition probabilities. In conclusion, this paper yields the outcome that Turkish FDI growth equation has significant structural changes in level and trend and that has significant coefficient shifts in explanatory variables. These explanatory variables are Turkish GDP Growth, Labor Cost, the Electricity Price Growth, the growth in average prices of High Sulphur Fuel Oil, Cooking Coal, Steam Coal and Natural Gas, Export Growth, Import Growth, Discount Rate and Country Risk Indexes for Turkey, US and EU, respectively, within the time interval from 1988 first quarter to 2010 second quarter.

Suggested Citation

  • Bilgili, Faik & Tülüce, Nadide Sevil Halıcı & Doğan, İbrahim, 2012. "The determinants of FDI in Turkey: A Markov Regime-Switching approach," Economic Modelling, Elsevier, vol. 29(4), pages 1161-1169.
  • Handle: RePEc:eee:ecmode:v:29:y:2012:i:4:p:1161-1169
    DOI: 10.1016/j.econmod.2012.04.009
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    Cited by:

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    2. KARGI, Bilal, 2014. "Portfolio in Turkish Economy, and A Long Termed Relation Between Foreign Direct Investments and The Growth, and The Structural Breakage Analysis (1980-2012)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 70-81.
    3. Liu, Zhiyuan & Xu, Yue & Wang, Peijie & Akamavi, Raphaël, 2016. "A pendulum gravity model of outward FDI and export," International Business Review, Elsevier, vol. 25(6), pages 1356-1371.
    4. Vadlamannati, Krishna Chaitanya & Janz, Nicole & Berntsen, Øyvind Isachsen, 2018. "Human Rights Shaming and FDI: Effects of the UN Human Rights Commission and Council," World Development, Elsevier, vol. 104(C), pages 222-237.
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    6. Majah-Leah V. Ravago & Arlan Zandro I. Brucal & James Roumasset & Jan Carlo Punongbayan, 2019. "The Role of Electricity Prices in Structural Transformation: Evidence from the Philippines," Working Papers 201904, University of Hawaii at Manoa, Department of Economics.
    7. Faik Bilgili & Nadide S. Tülüce & Ibrahim Doğan & H. Hilal Bağlıtas, 2016. "The causality between FDI and sector-specific production in Turkey: evidence from threshold cointegration with regime shifts," Applied Economics, Taylor & Francis Journals, vol. 48(5), pages 345-360, January.
    8. Le, Thai-Ha & Tran-Nam, Binh, 2018. "Relative costs and FDI: Why did Vietnam forge so far ahead?," Economic Analysis and Policy, Elsevier, vol. 59(C), pages 1-13.
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    11. Udi Joshua, 2020. "Accounting for the Determinants of FDI Inflow in Nigeria amidst Global Oil Price Shock and Economic Recession," Academic Journal of Economic Studies, Faculty of Finance, Banking and Accountancy Bucharest,"Dimitrie Cantemir" Christian University Bucharest, vol. 6(3), pages 30-38, September.
    12. Sirin, Selahattin Murat, 2017. "Foreign direct investments (FDIs) in Turkish power sector: A discussion on investments, opportunities and risks," Renewable and Sustainable Energy Reviews, Elsevier, vol. 78(C), pages 1367-1377.
    13. Sanchez Martin, Miguel Eduardo & Escribano Frances, Gonzalo & de Arce Borda, Rafael, 2014. "How regional integration and transnational energy networks have boosted FDI in Turkey (and may cease to do so): a case study: how geo-political alliances and regional networks matter," Policy Research Working Paper Series 6970, The World Bank.
    14. Doğan, İbrahim & Bilgili, Faik, 2014. "The non-linear impact of high and growing government external debt on economic growth: A Markov Regime-switching approach," Economic Modelling, Elsevier, vol. 39(C), pages 213-220.

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    More about this item

    Keywords

    Markov Regime-Switching Model; State-space model; Structural changes; FDI;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F29 - International Economics - - International Factor Movements and International Business - - - Other

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