Long-run Impacts of Geopolitical Risk and Economic Policy Uncertainty on Foreign Direct Investments in Türkiye

OpenAlex English

This study examines the determinants of foreign direct investment (FDI) in Türkiye over the period 1985–2024, with a particular focus on economic policy uncertainty and geopolitical risk. In addition to these key risk factors, the analysis also incorporates economic growth and institutional quality as control variables within a long-run empirical framework. To account for possible structural changes in the Turkish economy, the study employs advanced time-series econometric techniques that consider fractional frequency values. The empirical findings reveal that both economic policy uncertainty and geopolitical risk have statistically significant and negative effects on FDI inflows. These results indicate that increases in uncertainty and geopolitical tensions discourage foreign investors by raising perceived risk and weakening investment confidence. In contrast, economic growth and institutional quality are found to exert positive effects on FDI, although their influence is secondary compared to risk-related variables. Overall, the results suggest that FDI inflows to Türkiye are primarily driven by risk and uncertainty conditions rather than purely economic fundamentals. The findings highlight the importance of macroeconomic stability, policy predictability, and geopolitical risk mitigation in attracting foreign capital. From a policy perspective, reducing economic policy uncertainty and strengthening geopolitical stability emerge as key priorities for improving Türkiye’s investment climate.