Dynamic Linkages among FDI, Macroeconomic Factors and the Turkish Stock Market

This study investigates the dynamic relationships between the FDI and a set of macroeconomic variables by employing a vector autoregressive framework. The empirical findings indicate that there is a structural break in the FDI in Turkey. The results indicate that there is a statistically significant relationship between macro variables and FDI starting 2001, which corresponds to the period when the Turkish government was relaxing restrictions on foreign FDI investment and changing from a fixed exchange rate system to a freely floating exchange rate. Furthermore, we find that the lira/USD exchange rate and the interest rate spread play a significant role in influencing and determining FDI changes.