The Impact of Exchange Rate Volatility on Foreign Direct Investment in Turkey

Abstract

This study investigates the exchange rate volatility and foreign direct investments in Turkey, using quarterly data over the period of 1998 and 2018. Since exchange rate volatility is not directly observable, a GARCH (Generalized Autoregressive Conditional Heteroskedasticity) model which allows volatility to change over time is used while estimating the exchange rate volatility. In addition, other variables which are frequently used in the literature such as output volatility, openness and interest rates, are added into the model to explain the other determinants of foreign direct investment, and the results are analyzed.