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The Effectiveness of Investment Incentives in the Turkish Manufacturing Industry

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  • Halit Yanikkaya
  • Hasan Karaboga

Abstract

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.

Suggested Citation

  • Halit Yanikkaya & Hasan Karaboga, 2017. "The Effectiveness of Investment Incentives in the Turkish Manufacturing Industry," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(6), pages 744-760.
    • Handle: RePEc:prg:jnlpep:v:2017:y:2017:i:6:id:641:p:744-760
    DOI: 10.18267/j.pep.641
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    References listed on IDEAS

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    3. Christopher F Baum & Mark E. Schaffer & Steven Stillman, 2007. "Enhanced routines for instrumental variables/generalized method of moments estimation and testing," Stata Journal, StataCorp LP, vol. 7(4), pages 465-506, December.
    4. Scott L. Baier & Gerald P. Dwyer & Robert Tamura, 2006. "How Important are Capital and Total Factor Productivity for Economic Growth?," Economic Inquiry, Western Economic Association International, vol. 44(1), pages 23-49, January.
    5. Barro, Robert J, 1999. "Notes on Growth Accounting," Journal of Economic Growth, Springer, vol. 4(2), pages 119-137, June.
    6. Michael Clemens & Samuel Bazzi, 2009. "Blunt Instruments: On Establishing the Causes of Economic Growth," Working Papers 171, Center for Global Development.
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    Cited by:

    1. Aneta Hintošová & Terézia Barlašová, 2021. "The Role Of Investment Promotion Policy In Attracting Foreign Direct Investment: The Case Of Slovakia," Public administration issues, Higher School of Economics, issue 5, pages 27-40.
    2. Petr Musil & Veronika Hedija, 2020. "Investment incentives as instrument of motivation of firms and economic stabilization," Entrepreneurship and Sustainability Issues, VsI Entrepreneurship and Sustainability Center, vol. 8(2), pages 578-589, December.

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    More about this item

    Keywords

    investment incentives; employment; output; productivity; panel data analysis;
    All these keywords.

    JEL classification:

    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • R00 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General - - - General

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