Abstract:
As the globalization spreads out in the world, some countries try to benefit of this. No doubt that globalization makes cheaper obtaining capital via foreign direct investment (FDI) that globalization makes happen. Turkey has also been interested in having FDI in order to improve its economic development. FDI can contribute to Turkey’s foreign trade, industrialization, and human resources. The literature argues in two ways that FDI can create significant impact on countries` capital formation, international trade, economic growth and employment. On the other hand, some literature emphasizes that FDI has no contribution to economic growth or employment of the country.
This paper follows the Cheng’s article about Taiwan (2006). We basically applied the same model to Turkey with some changes. As Cheng discusses in the article et al. (2006) some studies done regarding Taiwan. Cheng and Ku (2000) found that FDI does support the domestic industries and trade yet has no positive impact on employment. Grinols (1991) emphasizes that in order to have welfare gains the wages in new capital sectors must be relatively higher than the wages in the other sectors. Fang, Zeng, Zhu (1999) studied the effect of FDI on urban employment, labor income and national welfare. They utilized the Harris-Todaro economic model. They showed the conditions that as the FDI inflows, its impact on economic factors mentioned above.
