Vicious Cycle between FDI and Geographical Economics Identifiers for Developing Countries: Which one Triggers the other?

Abstract

In this study, the changes that can be made in the amounts of foreign direct investment and the reflection of these changes on the decision-making units in the economy are evaluated in terms of The Republic of Turkey and Turkic Republics by using data concerning geographic identifiers formed by elements of density, weathering and distance. As is known to all, the initial steps of the new economic geography approaches were taken under the leadership of the center-periphery model which was carried out by Krugman for the first time in 1991. This model was built on the economic-geographical structure, which is revealed by the interaction among incremental revenue in company level, transportation costs and factor mobility, and also it was built on the reasons that lead the subject structure to change. In this context, whereas incremental revenue and imperfect competition models are used, the approach, which is enhanced by introducing economicgeographic features into model, provides us with the concept of "new economic geography". Accordingly, while the foreign direct investments show a direction from developed countries to developing countries in the past; today, in which the factual reasons are more likely to stand out, it can be observed that the subject investments skid from developing countries to undeveloped countries. Turkey is in the category the developing countries. The Turkic Republics do not develop as much as Turkey does, and also these countries are substantially ranked at the bottom of the related category. One of the most important reasons of that situation is that the Turkic Republics haven't been able to realize the required developments in terms of legal regulations and in terms of the essential substructures such as urbanization, transportation and energy. As a consequence, the question whether to make the foreign direct investments in developing countries such as Turkey or in the relatively cheaper and open to all kinds of enterprise, subcategory developing countries such as Turkic Republics where the countries investing for substructure might weather the storm is of a big importance.

Headnote

Abstract

In this study, the changes that can be made in the amounts of foreign direct investment and the reflection of these changes on the decision-making units in the economy are evaluated in terms of The Republic of Turkey and Turkic Republics by using data concerning geographic identifiers formed by elements of density, weathering and distance. As is known to all, the initial steps of the new economic geography approaches were taken under the leadership of the center-periphery model which was carried out by Krugman for the first time in 1991. This model was built on the economic-geographical structure, which is revealed by the interaction among incremental revenue in company level, transportation costs and factor mobility, and also it was built on the reasons that lead the subject structure to change. In this context, whereas incremental revenue and imperfect competition models are used, the approach, which is enhanced by introducing economicgeographic features into model, provides us with the concept of "new economic geography". Accordingly, while the foreign direct investments show a direction from developed countries to developing countries in the past; today, in which the factual reasons are more likely to stand out, it can be observed that the subject investments skid from developing countries to undeveloped countries. Turkey is in the category the developing countries. The Turkic Republics do not develop as much as Turkey does, and also these countries are substantially ranked at the bottom of the related category. One of the most important reasons of that situation is that the Turkic Republics haven't been able to realize the required developments in terms of legal regulations and in terms of the essential substructures such as urbanization, transportation and energy. As a consequence, the question whether to make the foreign direct investments in developing countries such as Turkey or in the relatively cheaper and open to all kinds of enterprise, subcategory developing countries such as Turkic Republics where the countries investing for substructure might weather the storm is of a big importance.

Keywords: Geographical-Economics Identifiers, Foreign Direct Investment

JEL Classification: F210

Introduction

Today, it is possible to say that foreign economies encircle the specialized labor force and knowledge overflow as well as the supplier network. In that case, it is required to evaluate the "economic geography" approach which argues that economic life has a spatial position socially and institutionally. The approach of economic geography tries to explain the mystery of unequal spatial development. The most typical characteristic of spatial economy is the full-scale effect of economic concentration-agglomeration (Fujita and Thisse, 2009:109). Based on the opinion that economic life has a spatial position socially and institutionally, economic geography approach emphasizes that social structures, economic and political rules, and traditions must be analyzed in order to understand the regional differences; and the valid element of this approach is concentrating on the certain features of certain cities or regions (Filiztekin, 2008:26).

In the beginning of 1990s, the concept of New Economic Geography (NEG) was suggested by Krugman in terms of explaining economic growth emphasizing the role of externality. It is possible to summarize the basic features of NEG as follows (Brakman and Garretsen, 2006:569); the regions, which have demands related to the industries yielding an increasing profit in terms of scale, have more than their product's proportional share. Big market potential increases the local factor costs. A big market increases the demands for production factors, and this factor increases returns. The potential of a big market encourages factor inputs. As a result, footloose production factors can flow through these markets to which firms pay relatively high factor costs. At the critical level of transport or commercial costs, the higher decreases in commercial costs encourage agglomeration. The meaning of this is that economically integrating more causes agglomeration more of freedom of economic actions and of production factors. Shock sensitivity triggers effective and permanent changes in the balance of the changes in economic environment and the spatial distribution of economic activity.

The element which is the primary element among the basic subjects that NEG lays emphasis on is that the transport costs are important. Transport costs affect the decisionmaking of each producer and each consumer; as a result, they define the rising geographical samples. For example, Krugman formed a simple bi-zonal model showing that high costs cause disorder, and low transport costs cause agglomeration in economic actions (Takaaki, 2006:498). In the model formed by Krugman, a country which has two types of productions based on agriculture and manufacturing has been formed in order to understand the nature of pecuniary externalities. In that sense, agricultural production has the features such as fixed profit according to scale and the usage of unshifted field. The geographic distribution of this production will be determined by the exogenous distribution of available soil. On the other hand, manufacturing has the features of increasing profit according to the scale and the usage of inadequate soil (Krugman, 1991:485). According to scale economies, each manufactured good will take place in limited areas. While the other things are equal, the preferred areas will grow with the minimization of transport costs. The other areas will receive service from these central places. The production will tend to agglomeration in the areas where the market is big; however, market will be big in the areas where production concentrates (Krugman, 1991:486). According to Krugman, the aim of NEG is to form a model. This model shows that centripetal forces gather economic activities; and that centrifugal forces separate the economic activities. This situation indicates how the geographical structure of an economy is formed according to the tension between these forces (Fujita and Krugman, 2004:141). Thus, the spatial distribution of all activities including Foreign Direct Investments (FDI) can be seen as a consequence of the relationship between centripetal or agglomeration and centrifugal or competition forces (Basile, Benfratello & Castellani, 2010:7).

1.Literature Review

Economic growth takes place in the focus of neoclassical and Keynesian approach which has effectiveness in the development economics. The sociopolitical elements that will affect the roles of the economic actors taking place inside the subject approaches are either too little or none (Filiztekin, 2008:26). Nevertheless, "agglomeration" which is a concept of "spatial exogeneity" developed by Alfred Marshall in 1890s is used as the basic explanation of urban development, productivity and investments today (Guimaraes, Figueiredo and Woodward, 2000:115). A. Marshall made the following observations about the subject in his work named "Principles of Economics" (Guimaraes et.al, 2000:116); "When an industry chooses a region for itself, it stays there for a long time; the advantages that provide people in this region with having similar commercial skills by being affected by each other is quite great. Employers tend to settle down wherever they can choose the employees with the special skills that they need. The advantages of employment diversity are united with the settled industry in some of our towns, and are the primary cause of the ongoing growth of these residential areas". According to Marshall, agglomeration reveals economies which exclude a firm but include a small geographical area.

When it comes to 1990s, a new economical geography approach's foundations were laid with centre-periphery model by Krugman. This model is formed on the spatial economic structure which is revealed by the interaction among increasing yields on firm level, transport costs and factor mobility and on the causes that leads to the change of subject structure. In this frame, the approach developed by Krugrman in the late 1990s which includes the geographic features of the economy by using increasing yields and imperfect competition models is called "new economic geography" approach. However, the element which distinguishes Paul Krugman, winner of Nobel Prize for Economics in 2008, from other scientists is that he managed to make general equilibrium model explain "why, how and when the economic activities gather in certain places" (Fujita et.al, 2009:109). Since the study of Krugman, some studies related to the understanding of the location of economic activities have been developed.

It is possible to summarize the other studies on economic geography as follows. The first explanation about the existence of cities and industries is the "central-place theory" of Lösch which assumes that firms settle down so as to maximize their profits. Krugman (1995) extended this theory by combining "market size", "agglomeration" and "local economies". Henderson, Shalizi and Venables (2000) suggested an evaluation about "agglomeration". In addition to market based factors, it was stated that politically engaged forces and applications such as "favoritism" could affect the location of industry towards certain regions (Sridhar and Wan, 2010:114). In the study made by Krugman and Venables (1996), it is detected that agglomeration forces caused industrial agglomeration after commercial liberation. Non-routinised relationship between integration and agglomeration was first revealed by Venables (1996), later by Krugman and Venables (1995) and Puga (1999). Along with this, it is assumed in all these models that the countries are not different from each other at the beginning (they do not have a comparable superiority); and this is why their structures of trade is uncertain. Although many NEG models are abstracted from differences of factor endowment, there is a set of exceptions. Krugman and Venables (1990) evaluated a two-country model whose agglomeration forces suit to comparative advantages because of the specialization in the industries having comparative advantages in the last phase of increasing commercial liberalization of the countries and in which such a phenomenon is temporary and becomes distinct in terms of both factor profits and market size (Epifani, 2005:647-648).

2.Spatial Location Identifier Determining the Spatial Distribution of Foreign Direct Investments

By definition foreign investments are transferred to another country by persons or organizations. Except for portfolio investment expressing that the shares of companies traded at a country's exchange are purchased by the organizations of another country or other countries, the investments realized by owning the whole one or more international investors, or by creating partnership with one or more local firms are defined as Foreign Direct Investment (FDI) (DPT, 2001:1; OECD, 1999:7). Generally speaking, FDIs points out the international investments that an established business in a country makes in order to get in a long term relationship in another country (IMF, 1993:86). This type of investments are capital transfers as well as they provide with enterprise, technology, risk, transport and organization transfers; thus, they are evaluated as the finance of only plant and equipment of the businesses. As a consequence, FDIs bring the knowledge of management and know-how with them; also, they introduce competition factor to the country. Well-planned and effectively-directed FDIs create various positive economic effects on the economy of home country where the investment is made. These are effects such as production, employment, income, export increase, balance of payments, economic growth and general welfare. The fundamental effect of FDIs is their clear contribution to the home country's domestic income (Görgün, 2004:4).

In the World Investment Report of UNCTAD in 1998, an analysis of the factors affecting FDIs was made. The subject identifiers are divided into three main topics as follows: economic factors, the factors related to investment environment and political factors. Also economic factors include subtopics in terms of investment strategies. The factors determined by UNCTAD are given in the Table 1.

In Table 1, it is possible to see the factors affecting FDIs together in spite of their degrees of affecting. In the model of the study made by (Redding and Venables, 2004:78) with the data obtained from 101 countries, the regression analysis results show as follows: the "economic identifiers" and also the "geographical identifiers" are important in terms of the entrance of FDIs to the market.

Location identifiers which affect the decisions of FDIs while selecting location are one of the most important subjects which attract the attention of the academia and political circles. In order to encourage investments into their countries, governments consider these determinants in their policy packages which they prepare and apply. Even lately, some European countries have made broad regulations about taxes in order to encourage FDI investments (Zungun, 2016:113). There is a broad academic literature in this field. When the previous studies are analyzed, it is seen that traditional international investment theories such as Vernon's "product life-cycle hypothesis", Kojima's "comparative cost theory" and Buckley and Casson's "internalization theory" researched about FDIs' motivation and location identifiers from different point of views. In the later studies, Dunning synthesized existing FDI theories and developed a new theoretical structure. The theoretical structure of Dunning is called the eclectic theory (paradigm) of international production which analyzes the identifiers and structure of FDI in terms of advantages belonging to home country, internalized advantages and location advantages. Location advantages are the advantages related to asset and resource endowments, labor costs, market and relative factors, substructure and government policies which determine the location of production area selection. Based on Dunning's theory, many inter-country comparisons have been made (Xu, Liu & Qui, and 2009:3).

Also the study "Spatial Determinants of Inward FDI in China: Evidence from Provinces" made by XU, LIU and QIU is accepted as one of the best examples for spatial distribution. In this study in which the spatial determinants related to FDIs in China are analyzed, it is stated that one of the most significant factors affecting the location decision of FDIs in China between 1998 and 2007 in the frame of New Economic Geography Theory is "agglomeration economics".

In the late 1970s, high level FDI flow became a phenomenon feature of Chinese economy after China started to follow globalization and it became one of the most important triggering factors for Chinese economy rapid growth. The entrance into WTO made China a new "hot field" in terms of world foreign investments and raised China to the level of the biggest country of the world in terms of foreign capital flow in 2003 instead of USA. At the end of 2006, the total amount of FDI in China reached at $524 billion. What is surprising is that most of these investments agglomerate in the coastal regions in the East of China. The order of regional density of FDIs in China is as follows: in the East 86.85%, in the Center 8.79% and in the West 4.37%. One of the reasons of regional unbalance in China's economical development became FDIs, themselves. In this case, what are the most effective elements in terms of location distribution decisions of FDIs in China? Why did FDIs center on the East China instead of the West China? What are the common economic-geography factors and what other factors can be classified? In a frame of Core-Periphery, all the big cities in China - as the biggest trade centers Hong Kong and Shanghai- has vital effect on FDI location distribution in China. Besides, Beijing, in spite of the capital of China, doesn't have much effect on location selection and distribution of FDIs (Xu, Liu and Qiu, 2009:1-3).

It can be observed that different determinants of FDIs in China can be dominant in selecting investment location in terms of country of origin. For instance, while the existence of agglomeration effect of FDIs coming from Korea, Australia, Germany, Japan and Singapore is wide, its effect is not very wide in terms of foreign investments coming from France, USA, UK and Taiwan. The FDIs from South Korea, Australia, Singapore and Taiwan seem to be more sensitive about the quality of labor force (Xu, Liu & Qiu, 2009:3).

3.Comparative Analysis of DFIs in Turkey and Turkic Republics from the Perspective of New Economic Geography

In the context of elements which determine the direction of DFIs forming the dynamics of NEG and stated in the literature review, comparison of Turkey and Turkic Republics is a significant subject in terms of prudentially approached countries in order to draw up strategies. First of all, a comparative analysis will be held in terms of density, distance and disintegration within this context; in addition to existing dynamics, a comparison of taxation which affects DFIs will be made and later, what kind of a course Turkey and Turkic Republics must set as the power to shape World Economic Geography will be mentioned.

3.1.Comparative Analysis According to Density Factor

Urbanization and agglomeration, as the geographical elements, are the basic components in the density concept which defines the key feature of the urban settlements. The importance of agglomeration according to NEG is that increasing overcrowding will enable companies to spread geographically whereas forward and backward relations will cause companies to gather in a certain region as a result of the existence of scale economies. Based on which of these two opposite powers (centripetal and centrifugal) are active, structuring of regional production will be shaped (Filiztekin, 2008:61). It is possible to evaluate the data related to urbanization and agglomeration of Turkey and Turkic Republics within this scope in Table 3.

Urbanization and agglomeration potentials have a significant role in the selection of regions (or areas) that DFIs are spatially going to be located. Analyzing Table 4, when a classification is made among the countries taken under review in terms of subject factors, the following evaluations can be made: Turkey would be on the top ranks until 2015 in the sense of urbanization; and also paralleled with the urbanization pace the rate of agglomeration of the economic activities with the value 62.5 is a positive factor to attract DFIs into the country by the end of 2005; existing agglomeration rate rises along with the urbanization rate which reaches to 71.9% levels in 2015. Within the same context, it is seen that Kazakhstan, Turkmenistan, Azerbaijan and Uzbekistan are the countries with high potential in terms of urbanization and agglomeration index. Especially, the expectation of rise in agglomeration amount and urbanization rate of the economic activities at the level of 51.3 of Kazakhstan (it is estimated that 56.3% rate would raise to 60.3% in 2015) can be considered as an indicator that provides with attraction of the DFIs into the country. The expectation of rise in rates of urbanization of Turkmenistan and Azerbaijan by 2015 reveals that the countries have the potentials to contribute to increase the number of existing DFIs in the medium term. In terms of appealing the DFIs, although agglomeration index of Uzbekistan, which is one of the countries in the region considered as not so effective as Turkey, Kazakhstan, Turkmenistan and Azerbaijan, is approximately 58.8 %, it is estimated that the urbanization pace which is one of the dynamics of NEG and at the same time effective in spatial choice of DFIs (approximately 38%) of the country is estimated to be lower than the pioneering countries. Similarly, agglomeration indicators of Kirghizia and Tajikistan, which are in a weaker position when compared to the countries in the region in terms of the total amount of DFIs, are also weak and it is observed that they do not realize their potentials.

3.2.Comparative Analysis According to Distance Factor

Another element affecting the DFIs appears as distance which includes entrance to the markets and transport costs. The identifiers related to distance are the leading factors that a foreign company often lays emphasis on when choosing the location. The spatial identifiers are able to ease the heading of DFI flows to the country. NEG theory reveals that the companies tend to settle in a location in case of a situation which makes it easy for them to enter into the big-scale market with low transport costs under the mutual effect of scale-based increasing yield and transport costs. It is suggested that much more structure development has a positive effect on DFI's location choice by reducing transport and data collection costs. Besides, this type of factors show that the market potential of a country, its commercial substructure, its market growth rate, its increasing scale-based yield levels, its expenditure items and its market density shouldn't be ignored.

When the table is analyzed below in terms of spatial indicators, it is clear that the most significant obstacle that causes DFIs to have difficulty in entering the market is the connection routes. Geographic qualifications such as whether or not a country has a coastline, or whether or not it has a mountainside-like topography have importance in terms of both easing liberty of trade and international trade, and the entrance of DFIs into the country (Shelton, 2007:2233). When viewed from this aspect, Turkey is a country gaining advantages over other countries in terms of spatial indicators such as sea-shipment because the other countries do not own coastlines. By 2007, the number of airports is 89 and the number of seaports used in order for shipping trade and sea transportation is 8. Kazakhstan is the second country in terms of the number of airports (67) in proportion with its area. From the point of airline transport, after Turkey and Kazakhstan comes Uzbekistan, Azerbaijan, Turkmenistan, Kirghizia and Tajikistan in this very order. Whereas Azerbaijan is the busiest country in terms of railway transport, the other countries are in the order of Turkey, Uzbekistan, Kazakhstan, Turkmenistan, Tajikistan and Kirghizia. Besides the railway which is an important means of transportation in travelling and conveyance of goods, it is seen that Azerbaijan has the busiest level of highway which is not in proportion with its area. It can be stated that Azerbaijan, which preponderates both in highways and in railways, has the potential to encourage the entrance of DFIs into the country. Although it is not accepted as preferable when compared to road haulage, there are plans related to improving railway by investing $ 5 billion until 2010 and $ 23.5 billion until 2023 (YASED, 2008:12). As a result, the applications related to enlarging the alternative highways of travel and of conveyance of good along with a discount in the transport costs can provide with the supportive contribution to DFIs. In this frame, "Global Competition Report" published annually by World Economic Forum (WEF) shows the evaluations related to substructure of 144 countries and Table 4 is formed according to the evaluations of the subject countries. The evaluations are as follows:

Having an intensive and effective substructure is the main factor among the identifiers of any country's competitiveness. Having a qualified and intensive substructure, the country will gain favor when determining how economic activities will behave in choosing the location. When Table 5 is analyzed, in 2015 while Turkey, ranking 33rd, has the most developed substructure in terms of the quality of all substructure owned by countries by the data of end of 2014, Kirghizia, ranking 104th, has the least developed substructure. The second best country after Turkey is Azerbaijan, ranking 39th, whereas Kazakhstan has the position of the third best country in terms of substructure. Another substructure factor significant for FDIs is the rank of the quality of road haulage. By the end of 2013, Turkey, ranking 36th, and Azerbaijan, ranking 70th, are the leading countries in transporting goods by road. Kirghizia, ranking 131st, and Kazakhstan, ranking 107th, are the least qualified countries in terms of roads. There are some reasons for the alternative of transporting good by road to be used less when compared to railway in Silk Road. These reasons are as follows: there are few direct road connections which enable access to the production centers and significant markets, the regulations among the countries in the region, differences of policies and standards and ineffective border checks (UNCTAD, 2013:25). In terms of the quality of railway substructure, Turkey ranks as 53rd by the end of 2014 and has the second worst rank among Turkic republics after Kirghizia. The countries which have the highest quality are Kazakhstan, ranking 27th, and Azerbaijan, ranking 39th. Turkey, ranking 33rd, has the best position among the countries evaluated in the direction of 2014 year-ending numbers in terms of airline transport. After Turkey come Azerbaijan, ranking 41st, and Tajikistan, ranking 78th. On the other hand, Kirghizia has the worst position among the countries with the rank of 126th. In terms of electricity demand which plays a crucial role in the process of production, Kirghizia, ranking 155th, is the country in the lowest level; Azerbaijan, ranking 63rd, is the country in the highest level after taking the leadership from Turkey years later according to the year-ending computations of 2014. In addition to shortening the distance among regions, the existence of a well-improved substructure will play a part that makes it easier for the countries (or regions) to have access to the national and international markets with lower costs. Within this scope, it shouldn't be forgotten that one of the most important identifiers affecting the choice of location of the DFIs is the situation and the quality of the substructure of relevant region or country. Especially, when the subject Turkic Republics, except Turkey, are evaluated as landlocked countries, that their substructures are insufficient and problematic can cause high commercial costs and also cause them to become ineffective regions. While this situation prevents this type of countries from getting involved in global economy, it can also be evaluated as a factor delaying the entrance of DFIs (UNESCAP, 2006:12). Consequently, when the period of 2010-2015 is generally evaluated, although the countries in Turkic Republics are observed to try to improve their countries in terms of their substructure quality; that they are far behind the performance of Turkey is clearly seen. This evaluation shows that the subject countries reveal a spatial weakness in terms of leading DFIs into their countries.

3.3.Comparative Analysis According to Disintegration Factor

The importance of disintegration factor, which can be characterized as not getting involved in NEG factors determining the distribution of GDP in global level, has been stated at the beginning of the study. It is inevitable that the disintegrated countries (or regions) will have a very low level of potential to become the center of attraction for DFIs. Namely, the globalizing world pushed countries, which feel the harshness of competing alone in every field, to form only one market inside their regions by creating regional blocks and forming common political, judicial and social systems.

The growing economies, formed by the data obtained from Global Competitiveness Report and "Globaledge" which is prepared by Michigan State University and determined by the magazine Economist, are evaluated in terms of market potentials and the certain factors about markets. These data directly state the degree of integration of markets and countries. As the broad markets enable companies to benefit from scale economies, the significance of market size is incontrovertibly a lot.

When Table 5 is evaluated, Turkey is at the rank 14th among 144 countries by the end of 2014 in terms of "domestic market size" which is a factor that increase the potential of becoming an attraction center related to DFIs. Kazakhstan follows Turkey by making a big leap from 111th rank to 47th. After Turkey and Kazakhstan comes Azerbaijan which makes its mark by making a big leap, like Kazakhstan, from 111th to 70th; consequently, Azerbaijan reaches the condition of having the third biggest domestic market. Kirghizia, ranking 144th, and Tajikistan, ranking 133rd, can be considered as the countries with the most negative situation in terms of domestic market size.

The effect of trade on growth showed increase along with globalization. Consequently, export of a country is important in terms of being an indicator of DFIs that gives information about the domestic demand of the subject country (WEF, 2013:6). In this context, Turkey ranks 26th in the list made according to issue values. After Turkey which has the biggest amount of export among the countries of the region comes Kazakhstan. Azerbaijan, ranking 64th, appears as the closest country to Turkey and Kazakhstan. While Turkey is the leader within the region in terms of countries discussed for their export capacity, the gap between other countries and Kazakhstan and especially Azerbaijan reached at a non-negligible level. The countries with effective commodity markets do not have any difficulties in making productions suitable for supply and demand conditions. A healthy market competition is a significant factor in the locations of DFIs. It can be stated that the healthier the competition conditions are, the more entrance of DFIs into countries will happen. There is one last indicator related to whether the markets work effectively and whether they are competitive in Table 6; and it is the market dominance index rank which measures the monopolistic position of markets. The existence of a competitive market structure can be seen towards the top ranking of "market dominance" among 144 countries. According to this index, while Turkey ranks 44th by the year-end data of 2014, Kazakhstan rank 57th as a country with wide-ranging companies thanks to being the leader country in especially petroleum & natural gas industries, in iron-steel and nonferrous metals industries and in energy field (Kort, 2004:109-110). Kirghizia, ranking 101st, is considered as a country which hasn't been able to gain a complete economical strength and as a result doesn't have a competitive market. As seen, 2014 is the year of Kazakhstan and Azerbaijan which pulled ahead of Turkey and Turkic Republics with their rise in both domestic market and foreign market and also competitiveness. The reason is that there has been increase in private sector practices along with the advancements in opening to the foreign countries in Azerbaijan and Kazakhstan.

In Table 6 where the data related to our research about whether or not there are interventions towards markets are compiled, three rankings in which the disintegration in Turkey and Turkic Republics are evaluated are given place: "Density of commercial obstacles index ranking, Effect of laws related to DFIs on business index ranking and Density of foreign companies' index ranking". By the end of 2014; Turkey, ranking 42nd, is the least hindrance country in terms of the density of trade barriers and Tajikistan, ranking 112th, is the most hindrance country. Despite its regression against Turkic Republics which were majorly purified from their trade barriers and gained ground in the post-2010 period, Turkey managed to recover in 2014. However, Kazakhstan which is the closest follower of Turkey in Turkic Republics could only rank 85th, whereas Turkey ranked 62nd by 2014 in terms of Effect of Laws Related to DFIs on Business Index Ranking which determines if the DFIs are encouraged by governments or not. When a ranking about the existence of the foreign countries in a country is made, Kazakhstan, ranking 45th, has the biggest number of foreign company in its market; Turkey, on the other hand, ranks 94th. In this decline period during which hard times in terms of politics in the Middle East played an important role for the country, Turkey could hardly reached the ranking 94th after losing the density of foreign companies. It can be inferred from the ranking of Tajikistan, ranking 121st, that it is the most negative country with regards to existing values. However, in the general sense, when the 2010-2014 realizations are totally evaluated, it won't be wrong to say that Turkey is one of the leader countries as distinct from spatial indicators and paralleled with the amount of DFIs coming into the country and that Kazakhstan and Azerbaijan try to realize a performance in the way to follow Turkey with their enormous increase in attracting direct foreign investments in 2014.

Evaluation and Conclusion

There is a potential to apply the identifiers of new economic geography intended for macro-economical policies; nevertheless, it seems that it will take some time to take its part entirely in the theoretical models. However, new economic geography approach has still provided with the opportunity to include the variables, which were previously ignored or not included, into the model in economic analysis and to develop the computable geographic balance models now. When the geographic balancing models are analyzed in terms of the tendency of direct foreign investments considering the disintegration of developed and developing countries, it is observed that direct foreign investments move from developed countries to developing countries. In fact, whereas the amount of direct foreign investments getting into developing countries in 2013 was $ 670 billion, the amount increased $ 11 billion more in 2014. On the other hand, whereas the amount of direct foreign investment getting into developed countries in 2013 was $ 566 billion, the amount decreased to $ 498 billion with a decline of $ 68 billion.

In the light of literature review made in our study, three variables determining the direction of DFIs; namely, disintegration, distance and density, have been discussed. Density variable has been added into the model with an aim of revealing the density of economic mass or economic activities of each continent in terms of geography since the density variable is a value that introduces the characteristics of urban settlements. If urbanization rate accelerates in a country, that country gets rich and its economic activities also enhances. The geographic transformation in the economies will play a vital role both in providing the economic development and in preventing the poverty. Consequently, while the role of concentration which is one of the geographical identifiers was being observed in our analysis, urbanization and agglomeration indicators were included. When the agglomeration index and urban population variables were analyzed as the indicators of urbanization, the values of population density, as the representative of agglomeration indicators, the population in large cities and the population in the largest city were analyzed as the variables in our study. Distance variable has been added into the model in order to explain the spatial transformations which are important for rapid economic growth and accompanying economic development. While distance factor reveals the analysis of how easy or hard to move goods, services and capitals, it can also calculate in which criteria product and service markets, movement of work force ad capital flows are relocated in terms of their values. As the indicators of distance factor, the variables road substructure quality index, railway substructure quality index, airway substructure quality index and electricity demand quality index were used and the findings were evaluated. Finally disintegration variable in the model has been analyzed in order to reveal how the countries disintegrating from each other by preventing goods and services flows and by restricting free movement of capitals and people will be affected from this situation. As the number of borders separating countries from each other increases, the results will be the shrinkage of trade, freedom of movement and the liquidity of production factors. This situation will affect both the domestic and foreign market power of countries and international trade negatively. As a result, firstly the variables related to world ranking in terms of domestic and foreign market size and market dominance of Turkey and Turkic Republics took place in our analysis in order to measure the direction and the degree of the results of this effect; and after that the variables of trade barriers, regulations about DFI laws and the density of foreign companies indexes which are thought to influence this result were studied and the obtained findings were evaluated.

First of all, when the direct foreign investments coming into Turkey and Turkic Republics and the GDP growth rates of the countries are studied, it is observed that despite the decreased growth rate of Turkey after 2012, the foreign investments coming into the country have always been more than the ones in Turkic Republics. Azerbaijan, which doubled its investment amounts in each year, is the second country after Turkey with the foreign investment amounts coming into the country as follows; $ 2032 billion in 2013, $4430 billion in 2014 and $ 7843billion in 2015. Following Azerbaijan; Kazakhstan, whose foreign investment amount were cut in half on account of the problems inside the country and in the region in 2015, takes the third place.

While Turkey managed to reach the top of the ranking by 2014 according to the evaluations made in terms of domestic and foreign market size and market dominance, Kazakhstan ranked second and Azerbaijan, ranking third, followed these countries. In the aspect of regulations about DFI laws, Turkey ranks first whereas Turkey lost its place to Kazakhstan in the rankings of the density of foreign companies inside the country.

As a result, new economic geography approach reveals that foreign investors tend to settle down in a geographical location where it is easy to enter the big-scale markets under the interaction of scale-based increasing yields and costs. Thus, it is an inevitable fact that foreign investors are positively affected by the advancements in the quality of substructure in the countries, providing movements in the direction of center in the cities and the reduction in the costs of transport. Several studies have emphasized the importance of the role of substructure quality in the location choice of DFIs and managed to prove the direction of the effect in terms of values by using various variables. It is seen in the frame of the comparative analysis in our study that Turkey and Azerbaijan are the leading countries when an evaluation is regionally made in the context of the subject countries in terms of attracting DFIs between 2000 and 2014. However, reaching the leader countries' levels and ensuring more DFIS coming in the country also depend on the fact that the countries in the region must seize the opportunities and remove the disadvantages which are thought to have great potentials in terms of NEG theory.

Today direct foreign investments are moving from developed countries to developing countries. Turkey is categorized as a developing country. Even though they are not performing as well as Turkey in developing, the Turkic Republics rank at the bottom of this category. One of the most important reasons of this situation is that the basic substructures of Turkic Republics such as existing energy and road have not developed yet. Consequently, the question if the direct foreign investments must tend towards Turkey or towards the Turkic Republics which are open to every kind of entrepreneurship in this aspect is important. However, as the yield obtained from the investments made in the developing countries whose substructures have not developed will not be as much as the developing countries whose substructures have developed, it is a more rational decision to invest in the developing countries with developed substructures.

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