Factors influencing foreign investment flows into Turkey

Foreign investment, both foreign direct investment (FDI) and foreign portfolio investment (FPI) are important determinants of development. Thus, identifying the main drivers of investment is critical especially for emerging markets. This paper focuses on the factors influencing foreign investment flows into Turkey. Based on the literature, we identify the main factors affecting foreign investment as GDP growth, trade openness (structural factors), fiscal deficit, inflation, exchange rate, risk premium (macroeconomic factors) and EU accession, level of global liquidity (global factors). We examine the relative importance of these variables for FDI and FPI flows into Turkey using VAR methodology for quarterly data from 1992 onwards.