Spillover effects of foreign direct investments on Turkish manufacturing industry

Abstract

In this article, spillover effects of foreign direct investments on Turkish manufacturing industry have been examined by five single equation econometric models. All models are constructed in line with the recent spillover models both for developed and developing economies. The first two models aimed to estimate the spillover effects of the presence of foreign firms on the productivity and competitiveness of domestic firms. Estimation results suggest that while the presence of foreign firms increases competition in domestic industries, there is no significant contribution on the productivity of domestic firms. Two of the remaining three models basically tested the impact of technology gap between domestic and foreign firms on the productivity and market growth of domestic firms. However, no significant relation is found between those variables. The final model estimated the impact of the initial technology gap on the change in technology gap in the course of time. In the final model, a significant correlation is found. Those results and some accommodating data on the performances of multinational firms led us to conclude that Turkey is at the crossroad. If locational advantages of the country are developed by proper policies, spillover effects on the domestic industries could be materialized with the rising competition, which has already brought into by the presence of foreign firms. Copyright © 2000 John Wiley & Sons, Ltd.