The Necessity of Sector Carrying Capacity in Multinational Companies' FDI Location Choice

Abstract

The aim of this study is to define the carrying capacity as a new criterion in multinational companies' foreign direct investment (FDI) location choice. The validity of such a definition requires the existence of a causal relationship between FDI and the number of companies at the investment location. As carrying capacity is a function of the sector population, FDI refers to the decisions of foreign investors regarding location choice. With this in mind, the company numbers and FDI data used belonging to 34 sub-sectors of Agriculture, Industry and Services sectors in Turkey between the years of 2006-2016 were analyzed. The Granger causality test was applied to investigate the causal relationship between the company numbers and FDI. As a result of the findings, a causality relationship between the number of companies and FDI was determined in 29 of the 34 sub-sectors. A causality relationship could not be found in 2 sub-sectors. Analysis was not possible in the remaining 3 sub-sectors because of a lack of data. The results show that carrying capacity can be used as decision criterion in multinational companies' FDI location choice. In addition to this main result of the study, predictions for the investment decision are presented in the light of the analyses along with evaluations of the carrying capacity of the Agriculture, Industrial and Services sectors.