The Effects of Terrorist Activities on Foreign Direct Investment: Nonlinear Evidence from Turkey

Abstract

In this study, we examine the relationship between foreign direct investment (FDI) and terrorist incidents that took place in Turkey during the period 1991:12 to 2003:12. By doing so we contribute to the literature by allowing for a possible nonlinear relationship between terrorism and FDI. The data used to measure the intensity of terrorism were collected from a major newspaper of Turkey, and therefore is limited to the direct signals given to the market. Empirical evidence from both linear and non-linear models confirms that terrorism has a large negative impact on foreign direct investment. As far as the results of the nonlinear model estimation are concerned, the impact of terrorism on FDI is estimated to be more severe during periods of high terrorism where the intensity of terrorism passes a certain threshold level. This threshold level can be interpreted as a warning ‘signal’ that FDI may decrease severely and thereby can be used by policy makers to design effective policy measures and by potential investors as an indicator of a country’s risk profile

Small and Medium Enterprises and Global Risks: Evidence from Manufacturing SMEs in Turkey

“…These risks have been largely felt by Turkish SMEs in recent years. Turkey has been in close proximity to a number of regional conflicts with potential impacts on the SMEs (Omay et al 2013;Bilgel and Karahasan 2017) and because of their vulnerability (Pascual-Ramsay 2015) and awareness of these risks, such risks are perceived highly both in terms of the likelihoods and the impacts.…”

“…Bilgel and Karahasan (2017) found that after the rise of terrorism, the per capita real GDP in Eastern and Southeastern Anatolia declined by about 6.6%. Other studies also found that terrorism has a major negative impact on foreign direct investments in Turkey (Omay et al 2013).…”

Does Income Inequality Derive the Separatist Terrorism in Turkey?

“…The PKK deliberately targets dams, power plants, irrigation networks, etc. Therefore, separatist terrorism has some other direct or indirect effects on economy (Özsoy and Şahin, 2006;Araz-Takay, Arin, and Omay, 2009;Ocal and Yildirim, 2010;Omay, Takay, and Ilalan, 2011).…”

Terrorism and the Stock Market: A Case Study for Turkey Using STR Models

“…Mainly, we carried out diagnostic tests for skewness and kurtosis, autoregressive conditional heteroskedasticity (ARCH) test of Engle (1982), and the LM tests for autocorrelation, parameter constancy, and additive nonlinearity, as suggested by Eitrheim and Terasvirta (1996). If the estimated model passes all these 4 For other details involved in the estimation and evaluation phases, the researchers can read Teräsvirta and Anderson (1992), Hasanov and Omay (2008) and Omay et al (2013) diagnostic tests, then it can be employed for descriptive and/or forecasting purposes as we mentioned above.…”