THE EFFECT OF EUROPEAN DEBT CRISIS ON FOREIGN DIRECT INVESTMENT: CASE OF TURKEY

Abstract

European Union (EU) member countries are among the most important commercial and financial partners of Turkey. Thus, a
crisis that will break out in Europe will be able to seriously affect Turkish economy via especially foreign investment inflow
and export. In this study, in the light of quarterly data (2008Q1-2017Q2), the effect of European debt crisis on foreign direct
investment was analyzed specific to Turkey by using ARDL model. According to analysis results, a 1% increase in net external
debt of the euro area member countries’ will lead to 5.74% drop in Turkey’s foreign direct investments. At the same model, if
Turkey's national income increases by 1%, then foreign direct investment increases by %3.02. Turkey's national income
variable also has a positive impact on foreign direct investment, whereas the deposit interest rate variable does not have any
effect. In addition the coefficent of dummy variable was found to be negative and significant.