Long-run asymmetric association between FDI and productivity in Turkey

Abstract

Incoming foreign direct investments (FDI) may enhance the productivity level of the host country by bringing new advanced technologies. On the other hand, the nexus of FDI and productivity, rather than being linear, might be nonlinear because the effect of increases and decreases in FDI on productivity may not be symmetric. In this sense, this study investigates the asymmetric relationship between FDI and productivity in Turkey by using two different productivity indicators (i.e., PROD1 and PROD2) and employing a Nonlinear ARDL approach. Our hypothesis claims there is an asymmetric association between FDI and productivity in the long run in Turkey. Nonlinear cointegration test findings indicate that selected variables are cointegrated. Hence, they move together in the long run. Our study uses aggregated data at the macro level to analyze the long-term asymmetric relationship between foreign direct investment and labor productivity in Turkey using the NARDL estimation technique. Concerning the estimation results, a long-run nonlinear relationship between incoming FDI and labor productivity was detected, and this finding remained valid across two models constructed by using two distinct labor productivity indicators. As a whole, our results are consistent with the ones found in the literature. Besides, for the first time in the literature, this study addresses the long-run asymmetric nexus between FDI and labor productivity by using macro-level data specific to Turkey and makes various policy recommendations.