# **_FDI restrictions_**

**Turkey generally has an open policy regime regarding FDI in services, although there are restrictions in some services within the establishment and post‐manufacturing stages of production.** The left‐hand panel of Figure 4.3 shows that across all manufacturing and services sectors, Turkey has a relatively open FDI policy regime, scoring close to the OECD average. However, high FDI restrictions still exist in services sectors such as maritime and air transport, which are part of the post‐manufacturing stage (right‐hand panel of Figure 4.3). Although FDI for construction services (establishment stage) is not restricted, the real estate sector has high FDI barriers. Similarly, while there are few restrictions for FDI in overall business (back‐office) services, accounting services face high barriers.

**Figure 4.3: FDI services restrictions for Turkey and production stages (2014)**

<!-- Start of picture text --> FDI restrictions FDI restrictions<br>Maritime 0.575 Post-manufacturing<br>OECD 0.067 Air 0.575 Post-manufacturing<br>Real estate investment 0.550 Establishment<br>Accounting & audit 0.500 Back-office<br>TUR 0.059 Radio & TV broadcasting 0.400 Other<br>Business services 0.125 Back-office<br>0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1<br><!-- End of picture text --> Source: OECD; authors’ calculations. The scale of the regulatory restriction index is 0‐1.

**FDI restrictions in the post‐manufacturing and establishment stages can have a negative impact on the productivity of manufacturing firms.** Generally, high FDI barriers prevent countries from reaping productivity spillover effects upstream and downstream in the economy (Javorcik, 2004a; 2004b; Javorcik and Spatareanu, 2005) since foreign know‐how and technology do not flow to local firms. Such spillovers tend to be felt by local suppliers (i.e. vertically) rather than in the same sector where the FDI takes place (i.e. horizontally), although results depend on the country of analysis. FDI barriers in Turkey thus not only limit the entry of more productive foreign service providers, but also productivity‐enhancing spillovers to local suppliers of those service providers. This could have a negative productivity impact on manufacturing firms, particularly those that rely more heavily on efficient establishment and post‐manufacturing services.

# **_Domestic regulatory barriers_**

**Services suppliers, whether foreign or domestic, are affected by domestic regulatory barriers.** For instance, state‐owned enterprises, monopolies or other forms of state‐ownership can limit the entry of private firms, both domestic and foreign (Van der Marel, 2012). In this case, domestic regulatory barriers also become a trade barrier. This section examines Turkey’s domestic regulatory measures based on the OECD’s Product Market Regulation (PMR) database as well Turkey’s services trade policy regime using the OECD Services Trade Restrictiveness Index (STRI).

**Higher levels of domestic regulatory restrictions in Turkey are mainly in post‐manufacturing and back‐ office services.** Figure 4.4 shows the level of domestic regulatory restrictions of selected services in different production stages. The largest restrictions are in rail and road transport (post‐manufacturing

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