BY MEHMET KAYA
A joint study by Dumlupinar University and Dokuz Eylul University on foreign direct investment (FDI) and its relationship to financial stability in Turkey, Brazil, Argentina, South Africa, Mexico, India and Indonesia for the 2008-2019 period revealed that an increase in non-performing loans (NPLs), normally an adverse indicator for financial stability, raises FDI. Weak balance of payment and adverse trends in indicators such as steady growth, external debt and reserves, meanwhile, had negative effects on FDI inflow.
The cause may be the willingness of companies in difficulty to improve their situation through foreign partnerships. Instead, numerous local companies were taken over by foreign investors, especially in times of crisis, and the study says this should be prevented by the government. “Economic growth based on FDI isn’t sustainable, considering instability in capital movements seemed to develop after developing country crises in the 1990s and the 2008 global crisis. Developing countries should prioritize corporate robustness to provide macroeconomic stability instead of economic growth with the support of foreign sources,” the report said. FDI inflows, which are preferred as they’re considered to contribute to the real economy, will result in the capture of local companies, and alienation of national markets, according to the study. A similar opinion was expressed at the United Nations Conference on Trade and Development’s (UNCTAD) COVID-19 report.
