Foreign Direct Investment in Turkey and the Transitional Economies of Eastern Europe

Abstract

In many respects Turkey is unique amongst the developing countries. It is perhaps the only Islamic country to embrace Western mores and institutions; it is one of the few developing countries that can boast of a literacy rate high above the norm in other developing countries; and its geographical location astride two continents provides the country with a strategic commercial advantage. In recent years Turkey has eschewed most of its interventionist import-substitution policies and embraced an outward looking development strategy. These are all characteristics sought by foreign investors and they endow Turkey with a competitive edge over other developing countries in its bid to attract foreign direct investment (FDI). Despite this, the volume of FDI Turkey has attracted so far is relatively low. As argued in Balasubramanyam (1996), this is mostly due to macroeconomic instability and lingering doubts about the credibility of Turkey’s economic liberalisation policies.