Prague Economic Papers 2017, 26(6):744-760 | DOI: 10.18267/j.pep.641

The Effectiveness of Investment Incentives in the Turkish Manufacturing Industry

Halit Yanikkaya1, Hasan Karaboga2
1 Department of Economics, Gebze Technical University, Gebze/Kocaeli, Turkey (halityanikkaya@gtu.edu.tr)
2 Department of Economics, Gebze Technical University, Gebze/Kocaeli, Turkey (hkaraboga@gtu.edu.tr)

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: investment incentives, employment, output, productivity, panel data analysis
JEL classification: H25, O38, R00

Published: December 1, 2017  Show citation

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Yanikkaya, H., & Karaboga, H. (2017). The Effectiveness of Investment Incentives in the Turkish Manufacturing Industry. Prague Economic Papers26(6), 744-760. doi: 10.18267/j.pep.641
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