DOES INWARD FOREIGN DIRECT INVESTMENT INCREASE IMPORTS TO TURKEY? AN INSTRUMENTAL VARIABLES APPROACH
Abstract
Whether foreign direct investment (FDI) complements or substitutes trade is a significant policy issue. This is particularly the case with respect to the relationship between FDI inflows and host country imports, especially imports of intermediate goods and the adverse effects of the latter on the current account. A surge in FDI inflows and imports over the last three decades makes Turkey an interesting case for investigating the link between FDI inflows and imports. Applying an instrumental variables approach to panel data for 19 OECD countries with FDI stocks in Turkey from 1982 to 2007, I find that an increase of FDI by ten percentage points leads to an increase of imports by around 3.6 to 8.9% percentage points, on average. These findings suggest that imports ensuing FDI inflows can lessen the positive effect of the latter on the current account balance.References
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