The relationship between foreign exchange rate and foreign direct investment in Turkey

Abstract

ABSTRACT. The link between exchange rate and FDI flows has been investigated by several empirical studies. Besides exchange rate level and exchange rate volatility, some of the studies have also considered the effects of exchange rate expectations in their analysis. This study tries to test the hypothesis that there exists a reciprocal relationship between FDI inflows in Turkey and the real exchange rate level. Time series data for the period from January, 2007 to January, 2015 were used to investigate the effect of real exchange rate on foreign direct investment in Turkey in a long run. For this purpose, we employed a bound test cointegration approach that is based on the Autoregressive Distributed Lag Model (ARDL). The results obtained from a long-term static analysis of estimated ARDL model revealed that there is a cointegration relationship between the exchange rate level and FDI inflows in Turkey.