Politická ekonomie
Politická ekonomie
Prague Economic Papers
University of Economics, Prague

Prague Economic Papers - Articles first published online

The Effectiveness of Investment Incentives in the Turkish Manufacturing Industry

DOI: https://doi.org/10.18267/j.pep.641

[full text (PDF)]

Halit Yanikkaya, Hasan Karaboga

Published online: 29. 6. 2017

This study investigates the impact of investment incentives on sectoral labour productivity, capital intensity, employment and total factor productivity using data on sixteen manufacturing industry sectors in Turkey during the post-liberalization period. To deal with potential endogeneity of the investment incentives, we apply the system GMM estimation technique to the panel dataset for six five-year periods between 1981 and 2009. Our overall GMM estimations indicate that we fail to find any evidence that investment incentives positively affect anyone of our macroeconomic variables. While investment incentives do not increase the employment growth and total factor productivity growth significantly, they significantly reduce the growth rate of value added per work hour and capital stock per work hour. Given that since the early years of the Turkish Republic, investment incentive systems have always been an important part of the industrialization policies; our results have essential implications for the design and effectiveness of investment incentives.

Keywords: employment, investment incentives, output, panel data analysis, productivity

JEL Classification: H25, O38, R0

References:

Alam, K. F., Stafford, L. W. T. (1985). Tax Incentives and Investment Policy: A Survey Report on the United Kingdom Manufacturing Industry. Managerial and Decision Economics, 6(1), 27–32, https://doi.org/10.1002/mde.4090060106

Amsden, A. H. (1989). Asia’s Next Giant: South Korea and Late Industrialization. New York: Oxford University Press. ISBN 978-0195076035.

Atiyas, İ., Bakis, O. (2013). Structural Change and Industrial Policy in Turkey. TUSİAD – Sabanci Universitesi Rekabet Forumu. Working Paper No. 2013-3.

Ay, H. M. (2005). Yatirim Tesviklerinin Sabit Sermaye Yatirimlari Uzerindeki Etkisi (The Impact of Investment Incentives on Fixed Capital Investments). Selçuk Universitesi Karaman İktisadi ve İdari Bilimler Dergisi, 5(2), 176–184.

Baier, S. L., Dwyer, G. P., Tamura, R. (2006). How Important Are Capital and Total Factor

Productivity for Economic Growth? Economic Inquiry, 44(1), 23–49. Available at:

http://ssrn.com/abstract=906366, https://doi.org/10.1093/ei/cbj003

Barro, R. J. (1999). Notes on Growth Accounting. Journal of Economic Growth, 4(2), 119–137, https://doi.org/10.1023/A:1009828704275

Baum, C. F., Schaffer, M. E., Stillman, S. (2003). Instrumental Variables and GMM: Estimation and Testing. The Stata Journal, 3(1), 1–31.

Baum, C. F., Schaffer, M. E., Stillman, S. (2007). Enhanced Routines for Instrumental Variables/GMM Estimation and Testing. The Stata Journal, 7(4), 465–506.

Bazzi, S., Clemens, M. A. (2009). Blunt Instruments: A Cautionary Note on Establishing the Causes of Economic Growth. Center for Global Development. Working Paper No. 171.

Bernini, C., Pellegrini, G. (2011). How Are Growth and Productivity in Private Firms Affected by Public Subsidy? Evidence from a Regional Policy. Regional Science and Urban Economics, 41(3), 253–265, https://doi.org/10.1016/j.regsciurbeco.2011.01.005

Bronzini, R., de Blasio, G. (2006). Evaluating the Impact of Investment Incentives: The Case of Italy’s Law 488/1992. Journal of Urban Economics, 60(2), 327–349,

https://doi.org/10.1016/j.jue.2006.03.005

Buss, T. F. (2001). The Effect of State Tax Incentives on Economic Growth and Firm

Location Decisions: An Overview of the Literature. Economic Development Quarterly, 15(1),

90–105, https://doi.org/10.1177/089124240101500108

Cannari, L., D’Aurizio, L., de Blasio, G. (2006). The Effectiveness of Investment Subsidies: Evidence from Survey Data. Bank of Italy. Occasional Paper No. 4, https://doi.org/10.2139/ssrn.1014556

Chen, Y., He, Z., Zhang L. (2015). The Effect of Investment Tax Incentives: Evidence from China’s Value-Added Tax Reform. Available at: http://ssrn.com/abstract=1918579, https://doi.org/10.2139/ssrn.1918579

Crafts, N., Mills, T. C. (2005) TFP Growth in British and German Manufacturing,

1950–1996. The Economic Journal, 115(505), 649–670,

https://doi.org/10.1111/j.1468-0297.2005.01013.x

Daly, M., Gorman, I., Lenjosek, G., Macnevin, A., Phiriyapreunt, W. (1993). The Impact

of Regional Investment Incentives on Employment and Productivity - Some Canadian

Evidence. Regional Science and Urban Economics, 23(4), 559–575,

https://doi.org/10.1016/0166-0462(93)90047-I

Driehuis, W., van den Noord, P. J. (1988). The Effects of Investment Subsidies on Employment. Economic Modelling, 5(1), 32–40, https://doi.org/10.1016/S0264-9993(98)90005-0

Ersel, H., Filiztekin, A. (2005). Incentive or Compensation? Government Support for Private Investment in Turkey. The Egyptian Center for Economic Studies. Working Paper No. 107.

Hall, R. E., Jones, C. I. (1999). Why Do Some Countries Produce so much more Output per

Worker than Others? The Quarterly Journal of Economics, 114(1), 83–116,

https://doi.org/10.1162/003355399555954

Harris, R., Robinson, C. (2005). Impact of Regional Selective Assistance on Sources

of Productivity Growth: Plant-Level Evidence from UK Manufacturing, 1990–98. Regional

Studies, 39(6), 751–765, https://doi.org/10.1080/00343400500213648

Harris, R., Trainor, M. (2005). Capital Subsidies and Their Impact on Total Factor Productivity: Firm-Level Evidence from Northern Ireland. Journal of Regional Science, 45(1), 49–74, https://doi.org/10.1111/j.0022-4146.2005.00364.x

Klemm, A., Van Parys, S. (2012). Empirical Evidence on the Effects of Tax Incentives. International Tax and Public Finance, 19(3), 393–423,

https://doi.org/10.1007/s10797-011-9194-8

Lee, J. W. (1996). Government Interventions and Productivity Growth. Journal of Economic

Growth, 1(3), 391–414, https://doi.org/10.1007/BF00141045

Luger, M. I. (1984). Investment Incentives and the Demand for Labor in United-States

Regions. Regional Science and Urban Economics, 14(4), 481–503, https://doi.org/

10.1016/0166-0462(84)90028-0

Roodman, D. (2009). A Note on the Theme of too Many Instruments.

Oxford Bulletin of Economics and Statistics, 71(1), 135–158,

https://doi.org/10.1111/j.1468-0084.2008.00542.x

Saygili, S., Cihan, C., Yurtoglu, H. (2005). Turkiye Ekonomisinde Sermaye Birikimi, Verimlilik ve Buyume (1972–2003): Uluslararasi Karsilastirma ve AB’ye Yakinsama Sureci (2014) TUSİAD Buyume Stratejileri Dizisi (6), Ankara: TUSIAD. (Saygili, S., Cihan, C., Yurtoglu, H. (2005). Capital Accumulation, Productivity and Growth in the Turkish Economy (1972-2003): International Comparison and Convergence Process to the EU. TUSIAD Buyume Stratejileri Dizisi (6), Ankara: TUSIAD)

Schalk, H. J., Untiedt, G. (2000). Regional Investment Incentives in Germany: Impacts on Factor Demand and Growth. The Annals of Regional Science, 34(2), 173–195,

https://doi.org/10.1007/s001689900008

Skuras, D., Tsekouras, K., Dimara, E., Tzelepis, D. (2006). The Effects of Regional Capital Subsidies on Productivity Growth: A Case Study of the Greek Food and Beverage

Manufacturing Industry. Journal of Regional Science, 46(2), 355–381,

https://doi.org/10.1111/j.0022-4146.2006.00445.x

Solow, R. M. (1956). A Contribution to the Theory of Economic Growth. Quarterly Journal

of Economics, 70(1), 65–94, https://doi.org/10.2307/1884513

Swan, T. W. (1956). Economic Growth and Capital Accumulation. Economic Record, 32(2),

334–61, https://doi.org/10.1111/j.1475-4932.1956.tb00434.x

Tekin, A. (2006). Vergi Tesvikleri ve Ekonomik Etkileri. Dumlupinar Universitesi Sosyal Bilimler Dergisi (16), 301–316. (Tax Incentives and Its Economic Effects).

World Bank. (1993). The East Asian Miracle: Economic Growth and Public Policy. New York: Oxford University Press.

Yavan, N. (2011). Tesviklerin Bolgesel Ekonomik Buyume Uzerindeki Etkisi: Ampirik Bir Analiz. Ekonomik Yaklasim, 22(81), 65–104. (The Impact of Investment Incentives on Regional Economic Growth: An Empirical Analysis).

Yavuz, A. (2010). Bir Maliye Politikasi Araci Yatirim Tesviklerinin Rekabet Kosullari Altinda Ozel Kesim Yatirimlari ve Istihdam Uzerine Etkisi: Ekonometrik Bir Analiz. Suleyman Demirel Universitesi Iktisadi ve Idari Bilimler Fakultesi Dergisi, 15(1), 83–101. (As a Fiscal Policy Instrument, the Effect of Investment Incentives to Private Sector and Employment Under Conditions of Competition: an Econometrical Analysis).