Abstract: Foreign Direct Investment (FDI) has been a focus of many studies for the reason that many countries believe that FDI promotes economic growth and adds to employment. Further, ripple effects are felt as the new businesses will require suppliers and this encourages Small Medium Enterprises (SMEs) to develop. Increased per capita income will encourage more consumption in the country which will, again promote ripple effects contributing to economic growth. Hence, this study aimed to determine the relationship between Real Exchange Rate (RER) and FDI. Is there causal relationship between the two variables which may indicate economic gains as the Turkish Lira plummets and the Turkish government not intervening very much to stop the currency’s fall? The study used 44 years of data on both variables coming from reputable institutions, particularly World Bank and Bruegel. A simple regression was utilized for data analysis. The results show that the RER positively affects FDI inflows and the p-value shows a very strong evidence on this even up to 99% degree confidence. Further, the R-squared shows a good explanatory power of RER which tells us that if taken together with other variables having good explanatory power, that model may be used to predict the movement of FDI. The results also show that the claims of the Turkish government have basis, as letting the Turkish Lira fall would have positive effects on FDI inflows. RER provides 22% explanatory power, there may be other ways to encourage FDI, inflows without sacrificing much the purchasing power.
Keywords: Foreign Direct Investment, Small Medium Enterprises, Real Exchange Rate and purchasing power.
Title: THE IMPACT OF TURKISH LIRA AND US DOLLAR EXCHANGE RATE ON FOREIGN INVESTMENTS IN TURKEY
Author: Ahmad Manar Sakbani
International Journal of Thesis Projects and Dissertations (IJTPD)
Research Publish Journals
