The Determiners of Foreign Direct Investments: Case of Central Asian Republics


Foreign Direct Investment (FDI) is of vital importance especially in the economic development efforts of developing countries and constitutes the necessary capital resource for investments in the relevant countries. The main reason why the former Eastern bloc countries, also called transition economies, experience economic growth and development problems after transition to the market system is the lack of capital accumulation in these economies. Also, in these countries, lower savings and higher consumption tendencies emerge as another problem. Investments are also insufficient due to the low level of savings in these countries. This situation brings with it a vicious cycle of low growth and development rate due to lack of savings and of investment. With the dissolution of the Union of Soviet Socialist Republics in the early 1990s, the states that gained their independence faced socio-economic problems caused by a sudden transition from the centrally planned economy to the market economy. These economies, in which the transition to the market system is quite painful, are therefore commonly referred to as "Transition Economies".Central Asian Turkish Republics, which are among the transition economies, also need external financial resources to overcome problems such as lack of capital accumulation, low exchange income and public finance deficits. In this study, the factors that determine FDI in four Central Asian Republics (Kazakhstan, Turkmenistan and Kyrgyzstan, Uzbekistan) in the period between 2000 and 2016 were analyzed. For this purpose, variables such as economic growth, market size, macroeconomic stability, real effective exchange rate and infrastructure development were used. For this purpose, the factors expected to affect FDI were determined by using Dynamic Panel Data Analysis method by using the GMM estimator of Arellano-Bond (1991). As a result of the empirical analysis, an opposite relationship was found between the real effective exchange rate (rer) and infrastructure (TEL) variables and the dependent variable. It is observed that there is a similar relationship between macroeconomic stability, market size and economic growth variables and dependent variable. The real effective exchange rate (rer), macroeconomic stability (inf) and infrastructure (TEL) variables are statistically significant and largely explain the dependent variable.


Keywords


Transition Economies, Foreign Direct Investments, Central Asian Republics, Economic Development, Dynamic Panel Data Analysis

Author : Özhan TUNCAY -Elina KAPAROVA
Number of pages: 959-974
DOI: http://dx.doi.org/10.29228/TurkishStudies.41496
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Turkish Studies-Economics,Finance,Politics
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