The Determinants of Foreign Direct Investment in Real Estate Market of Turkey: Evidence from a Cointegrated VAR

Abstract

The aim of the study is to analyze the macroeconomic determinants of foreign direct investment in real estate sector (FDIRE) covering the period from 2003:01-2016:12 for Turkey. To this aim, Johansen cointegration test and VECM (cointegrated VAR) have been employed and also impulse response functions and forecasted error variance decompositions have been analyzed to shed light on the issue of the nexus between selected macroeconomic indicators and FDIRE. Empirical findings suggest that the number of one-year lagged tourist arrivals and real house rent is the most important and statistically significant determinants of foreign direct investment in Turkish real estate sector. The findings imply that real house rent shocks also have a positive and significant impact on real house price.