The Impact of Psychological Biases on Foreign Direct Investment (Fdi): The Case of Turkish Investors in Ethiopia

Abstract

This paper aims to assess whether there is a behavioral bias of Turkish FDI investors in Ethiopia. Besides, it addresses the influence of firm size, investment duration, target customers and amount of investment on the behavioral variables. In order to do so, a survey was conducted on a sample of Turkish FDI investors in Ethiopia which tries to examine their cognitive psychological factors towards their investment decisions. The survey result was analyzed using factor analysis. The statistical findings confirm that some psychological anomalies such as representativeness, herding, regret aversion and mental accounting have been observed on Turkish FDI investors. The regression analysis shows that amount of investment of the firms significantly and positively affects herding, representativeness, regret aversion and mental accounting behaviors. Furthermore, duration of investment in Ethiopia affects their representativeness and mental accounting behavioral biases of investors positively.

Keywords: FDI, Behavioral bias, Turkish investors, Ethiopia, Factor analysis

JEL Classification: G40, F21