Foreign direct investments, democracy, and economic growth in Turkey

Purpose - In the last decade, foreign direct investment (FDI) flows have increased dramatically in the world, especially in the emerging economies. Some of these countries make changes in their market conditions that will improve the civil rights and liberties to attract better FDI flows. The purpose of this paper is to test the linkage between democracy and FDI flows to Turkey. Design/methodology/approach - The present study employs a bounds testing procedure developed (Pesaranet al., 2001) for cointegration analysis on six different long-run models with selected determinants of FDIs with yearly data from 1977 to 2011. Findings - The intuition the paper empirically provides how improvements in democracy have a significant positive impact on FDI flows to Turkey. The results may also put forward that, in the long run, FDI inflows will have spillover effects in Turkey’s economy. Research limitations/implications - Although one drawback in the study is having a small sample size of 35 observations, estimating six different long-run models is one way to overcome it. Thus presented results may be in short of simplification for some readers. This, however, opens an opportunity for future studies to further the proposal by employing in different models and/or longer data sets if possible. Practical implications - A stable government policies, more civil freedom, and sustained institution politics should not be ignored in Turkey given its geopolitical location. Originality/value - This paper satisfies the established need to study of democracy and FDI flows link is necessary in an emerging market such as Turkey.