Sudden Stops, Foreign Direct Investments And An Evaluation In Defense Industry

The movement towards the areas where capital and investments are high creates countries an opportunity of not being limited to domestic demand for their products and not being limited to investments with their own savings. This process creats new opportunities, as well as some risks, especially for developing countries. When international investors want to attract funds from developing countries for various reasons, capital inflows can suddenly turn into serious capital outflows, and this sharp outflow of capital flows is defined as sudden stops. FDI play a key role as reducing the external financing needs and as an important source of economic growth for both developed and developing countries. FDI are expected to provide new technologies and R&D gains to developing countries, so the export performance of competitive sectors is expected to increase. In that case, it is important to lead FDI to the sectors which is able to provide new technology and R&D gains to the developing countries and creating foreign currency. In this study, we discuss the problem of sudden stops and FDI’s reducing impact on sudden stops. In the last chapter of the study, we try to show that Defense Industry in Turkey is a good case study for producing mid-high and hightech products, having comparative advantages and creating foreign currency.