Turkey’s performance in attracting foreign direct investment: Implications of enlargement

Abstract:

This paper analyses Turkey's performance in attracting foreign direct investment (FDI). The paper is divided into three main sections. The first section analyses FDI in Turkey over time and relative to Central and Eastern Europe. The second section identifies the key factors determining investment location and on the basis of these factors assesses Turkey's competitive position. The third section examines the impact of EU enlargement on FDI in Turkey and explores whether the IMF agreement is sufficient for reducing obstacles to investment. The paper concludes that Turkey has under-performed
in attracting FDI due to the slow pace of privatisation and political-institutional obstacles, of which chronic inflation is a manifestation. Structured interviews with global companies also highlighted lack of investment promotion as a major obstacle. While the IMF agreement will increase privatisation and reduce inflation, EU membership is vital if Turkey is to successfully compete for foreign investment.