The Impact of Terrorism on Foreign Direct Investment: The Case of Turkey

Foreign Direct Investment (FDI) is a key source of foreign exchange, new jobs and bleeding-edgetechnology transfers for the developing countries. However, terrorist attacks in a country are an importantfactor determining the preferences of companies in investing abroad.Turkey has been facing both internal and external terrorist groups’ attacks since the late 1980s. In thiscontext, this study discussed the impact of terrorism on FDI inflows in Turkey for the period 1990-2019.Autoregressive Distributed Lag (ARDL) bounds testing approach to co-integration was used in the study.The study revealed that terrorism affects FDI in Turkish economy positively and not significantly in theshort-run, while negatively and significantly in the long-run. Furthermore, the impact of some supportivevariables- inflation, trade openness, military expenditure and remittances on FDI and terrorism in themodel was also examined in the paper. The results concluded that trade openness shows a negative andsignificant impact on FDI both in the short-run and long-run. Remittances shows a negative and significantresult. This indicate that there is a short-run negative relationship between remittances and FDI. Inflationshows a positive but not a significant impact on FDI, and military expenditure also shows a negative andnon-significant impact in the short run, which normally has to be positive.