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How the failed coup could impact Turkey's economy

Investors will be watching President Recep Tayyip Erdogan's response to last week's failed coup attempt in Turkey, according to Bernard Haykel, professor of Near Eastern Studies at Princeton University.

Contentious politics, instability and recent terror attacks have led to a loss of tourism and the view that risks in Turkey are rising, said Haykel.

"People I think are wondering, look, if this guy Erdogan, who has these very authoritarian tendencies, doesn't get the country back in order, it's a risky place and don't invest there," he told CNBC's "Squawk Box."

On Monday, the iShares MSCI Turkey Exchange ETF was down 5 percent in premarket trading. The Turkish lira recovered against the U.S. dollar after dropping to a multimonth low on Friday.

Turkey suspended thousands of police officers on Monday, widening a purge of the armed forces and judiciary and raising concern among European allies that it was abandoning the rule of law.

While Erdogan is democratically elected and most Turks prefer him to military rule, he has also placed his supporters into key positions of power while ridding himself of "any form of opposition," Haykel said. The faction of the military that launched the coup was seeking to block that process, he added.

He also raised the possibility that the plotters were motivated by a perception that Erdogan would soon purge the military of supporters of Fethullah Gulen, a U.S.-based Turkish cleric with whom Erdogan was allied until the country's 2013 government corruption scandal.

Erdogan says Gulen orchestrated Friday's coup attempt, and Turkey is saying it is preparing to request Gulen's extradition. On Monday, Secretary of State John Kerry said U.S. compliance would require that Turkey present evidence.

Haykel said the United States should check Erdogan's power and ensure he does not overreach in managing purges, but ultimately the European Union — Turkey's largest economic market — has the most influence over the nation of 80 million people.

— Reuters contributed to this story.

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