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Abstract
In this paper, using monthly data for the period of 2004–2014, we employ a Markov switching model to examine the impact of the level and volatility of real exchange rate (RER) on foreign direct investment (FDI) inflows to Turkey along with a set of control factors. Our estimation results do not support any effect of volatility or the RER. On the other hand, internal factors such as agglomeration effect, inflation, new incentive measures of 2009, and external factors such as Euro area policy interest rate and risk appetite turn out to be effective in driving FDI into the host country.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. There are several types of switching models, such as self-exciting threshold autoregressions (SETAR; Tong Citation1990); smooth-transition models, such as LSTAR (Teräsvirta Citation1994); and the Markov switching model (MSM) (Hamilton Citation1989).