This paper stresses that foreign investments can be in three forms – foreign direct investments, indirect foreign investments and official loans. FDI includes investments in physical assets such as plant and machinery and it is based on an equity ownership of at least ten percent.
According to the report findings the main types of FDI are acquisition of a subsidiary or production facility or participation in joint venture, licensing and establishing of greenfiled operations. FDI has been growing faster than the world GDP and is now a major component of foreign investment. The effect of FDI on GDP is higher than the effect of other forms of foreign investment. Studies suggest that FDI triggers technology spillovers, assist human capital formation, creates a competitive business environment and enhances enterprise development. The collapse of the state socialism in Central and Eastern Europe (CEE) was the opening of the region to FDI. FDI was crucial not only to industrial restructuring in the region but also to the overall success of the transition towards a capitalist economy. Turkey was one such country which has become increasingly open to FDI since 1980 although it has yet to take full benefit of inward FDI. Turkey’s failure to attract FDI reflects the general mismanagement of the country’s economy. The economic issues that led to the failure of attracting FDI include high transactions cost of entry and operation of foreign investors.