The Impact of Foreign Direct Investment in the Tourism Sector of Turkey - Essay Example

FDI has been found to be an important aspect of economic growth; an underpinning generates financial inflows that aid in shoring up aspects of both developed and developing economies (De Soysa, 2003, p. 40). Dunning and Narula (1996, p. 1) tell us “The notion that the outward and inward direct investment position of a country is systematically related to its economic development, relative to the rest of the world …”. Foreign Direct Investment (FDI) represents investment inflows on an economic level that encompasses a broad cross-section of industries. This study shall narrow down that range to one sector, tourism, to seek to understand the impact of FDI in this segment with regard to Turkey for the period 2000 through 2008 in Istanbul.

Legislation and political changes in the country in 2001 that shall be delineated in later segments of this study have resulted in a significant upswing in FDI inflows for the period indicated. The foregoing, along with transaction cost benefits as represented by low labor costs, the positioning of the country as a gateway to the west, and the advantages of shipping finished goods back to Europe were also important factors that aided in FDI inflows. As shall be shown herein, increased FDI investment in manufacturing, technology, and other areas has primarily been concentrated in Istanbul, which has received the lion’s share of FDI firms at 63.3%, representing $19,892,086,507 in the capital (Berkoz and Turk, 2004). With respect to tourism, Istanbul has always been a preferred location in Turkey, and that appeal has been enhanced as a result of increased FDI. Overall that resulted in more business being conducted that spurred further development in hotels, and support areas that helped to enhance the city’s appeal as a tourist destination. In terms of tourist destinations, Turkey has twenty-two locations in this category.