Main aim of this text is presentation of the effects of customs union between the European Union and turkey on bilateral FDI flows in light of the theory of linkages between economic integration and FDI flows. First section of the text is a survey of main theoretical links between economic integration and FDI flows. Second section focuses on the history and scope of the customs union. Third and fourth sections are empirical and are devoted to presentation of the results of analysis of FDI inflows to the European Union and turkey, including main trends and impact of the economic integration. According to the results of the conducted research, FDI inflow to both sides of the agreement increased substantially. Intraregional FDI flows grew since the formation of the union which may be attributed to the positive impact of reduction of trade barriers and access to enlarged markets as well as linked changes in the turkey's legislation. FDI inflow from the third countries also increased.
TopIntroduction
Establishment of the European Union (EU)-Turkey Customs Union (EUTCU) in 1996 was another and, for the time being, last step in proceeding economic integration between the two sides involved. Apart from the most often considered impact of the economic integration (e.g., customs union) on trade flows, effects of this process can also be analyzed in terms of one of the main categories of capital flows (i.e., foreign direct investment (FDI)), even though this issue lies outside the main scope of the agreement. The value and structure of FDI inflows (i.e., flows of FDI to a particular country) is an important issue for a given economy due to their impact on availability of capital and other effects linked with entry of foreign companies. Hence, this issue should be regarded as one of the significant factors of the economic development and be analyzed in more detail. The main purpose of this chapter is presentation of the effects of customs union between the EU and Turkey on bilateral FDI flows in light of the theory of linkages between economic integration and FDI flows.
The first section of the chapter is a survey of main theoretical links between economic integration and FDI flows, including such areas as reduction of trade barriers, creation of customs union (particularly important in context of this text), access to enlarged markets, provisions regarding investment liberalization and protection, and long-term integration effects (such as changes in the dynamics of the economic growth). Second section will include short description of the EU-Turkey Customs Union. Aspects covered will be history of the agreement and selected aspects of covered bilateral economic relations, above all regulations regarding free circulation of goods and their implementation. Third section will be devoted to FDI flows trends in the EU and Turkey. Analysis will cover topics such as the volume and dynamics of FDI inflows, main investment partners, and sectors. The fourth section will focus on results of analysis of the EUTCU’s impact on bilateral FDI flows conducted with regard to the theoretical links between economic integration and this type of capital flows. The fifth and final section will be discussion and conclusions, including possible future developments in the EU-Turkey economic relationship and their impact on FDI flows – the most significant topic discussed will be the widely debated Transatlantic Trade and Investment Partnership.