Foreign Direct Investment and Productivity Nexus in Turkiye’s Manufacturing Industry: A Sectoral Analysis (2009-2022)

This study examines the relationship between foreign direct investment (FDI) inflows and productivity in Türkiye’s manufacturing industry, focusing on 14 sub-sectors from 2009 to 2022. The analysis aims to evaluate the impact of both current and lagged FDI on productivity dynamics using standard panel data, co-integration analysis, Fully Modified Ordinary Least Squares (FMOLS), Dynamic Ordinary Least Squares (DOLS), and a Panel Autoregressive Distributed Lag (ARDL) model to estimate short and long-term effects. In the short term, standard panel models show productivity has a positive relationship with current FDI inflows and per capita personnel costs, and a negative relationship with the turnover index. However, no significant relationship was found with lagged FDI. The Panel ARDL model confirms these dynamics, identifying a statistically significant positive FDI impact in seven of the fourteen sectors, highlighting sectoral heterogeneity. Long-term analysis reveals a different dynamic. While no direct relationship exists between current FDI and productivity, lagged FDI inflows positively impact sectoral performance. This finding is robustly confirmed by the Panel ARDL model, which indicates a stable long-run relationship via a significant error correction term. Furthermore, per capita personnel costs and the turnover index show positive long-term effects. These findings emphasize the need for strategic, sector-specific policies. The varied impact of FDI suggests a need to distinguish between high-absorption sectors that readily benefit and those requiring foundational capacity building to maximize FDI’s contribution to sustainable productivity growth.