TRANSPORT INFRASTRUCTURE AND THE GEOGRAPHY OF FOREIGN DIRECT INVESTMENTS IN TURKEY

This study explores the impact of transport infrastructure and services on foreign direct investment (FDI) flows to the Turkish provinces. To get rid of any reverse causality when examining the linkage between transport infrastructure and services and FDI location decisions, we adopt an instrumental approach. To achieve this, we instrumented all of our four transport-related explanatory variables with their historical figures. To handle this system of simultaneous equations, we eventually employ a Three-Stage Least Squares (3SLS) estimation. Using data for the 2000-2010 period, our results suggest that provinces with larger air traffic and denser road network tend to attract more FDI. The adopted scenario analyses suggest that, holding other variables constant, a 10% increase in both air traffic and road network density is likely to attract almost 291 new FDI projects and $4,441 million of FDI stock and create around 33,173 new FDI jobs throughout a 10-year period in the 74 Turkish provinces analyzed. The major contribution of our analyses is covering all of the four transport modes rather than employing one or two. In addition, we adopt traffic volumes for air and maritime transport to better reflect their economic impact rather than using dummy variables. Finally, yet importantly, our study differs from the majority of the previous literature in that it employs an instrumental approach when analyzing the effect of transport infrastructure and services on the location of FDI flows.