Can FDI Be a Panacea for Unemployment?: The Turkish Case
Posted: 17 Dec 2010 Last revised: 24 Feb 2013
Date Written: February 15, 2013
Foreign Direct Investment currently constitutes the main mechanism for economic globalization. Despite the rising integration of the Turkish economy into the global economy, FDI performance of Turkey remained lower than many other developing countries until the early 2000s. This was followed by a period of a boom in which Turkey attracted record levels of FDI inflows in her history. Accompanying these inflows, the country also achieved high rates of growth. However, high unemployment rates continued to be a major problem. This chapter seeks to explain the role of FDI inflows in job creation in Turkey at a sectoral level for the period 2000-2008. We use panel data analysis and find a positive, but weak relationship between FDI inflows and employment. Merger and acquisitions (M&As), as the dominant mode of foreign entry in Turkey, and/or the dominance of the FDI inflows in the financial sector after 2004 might be the reasons for this weak employment effect. Moreover, the tendency for the shift of foreign investment from low-tech to medium- and high-tech industries in Turkish manufacturing could lead to the negligible effect on employment. FDI, mainly projected to be integral to the transformation in Turkish manufacturing towards a higher value-added production, cannot be a cure for the high rates of unemployment in the country.
Keywords: Turkey, industrial development, foreign direct investment, sectoral employment, manufacturing sector, panel data
JEL Classification: C23, E24, F21
Suggested Citation: Suggested Citation