Does Innovation and Technology Policy Pay-off? Evidence from Turkey Erol Taymaz

1. Does Innovation and Technology Policy Pay-off? Evidence from Turkey Erol Taymaz Department of Economics Middle East Technical University Ankara 06531 Turkey Knowledge Economy Forum VIII INSEAD, Fontainebleau, France  April 28-May 1, 2009

2. Outline • Background: Turkish economy since 1980 • Innovation and technology policy in Turkey • R&D in Turkish manufacturing • Effects of R&D support programs • Economic crisis in 2008 • Policy implications

3. Relative GDP per capital

4. Relative productivity (hour worked)

5. Economic policies • 1960-1980: Planned development • Import substitution industrialization • Indicative planning • 1980-1993: Export-oriented “growth” • Export boom, based on real devaluation, low wages, and export subsidies • Trade liberalization • 1993-2001: Boom-and-bust cycles • 1994, 1999 and 2001 crises • 2001-2008: Rapid growth

6. Innovation and technology policy • 1960-1980: Planned development • 1960: State Planning Organization • 1963: Scientific and Technical Research Council of Turkey • 1980-1993: Export-oriented “growth” • 1980: “Turkish Science Policy: 1983-2003” • 1989: Supreme Council for Science and Technology • 1993-2001: Boom-and-bust cycles • 1991-2006: Technology Development Project – Industrial Technology Project • 1993: “Turkish Science and Technology Policy: 1993-2003” • 1996: Seventh 5-Year Development Plan (1996-2000) • 2001-2009: Rapid growth in GDP and R&D • 2004: Vision 2023

7. Milestones • Policy commitment • Supreme Council of Science and Technology • Policy conception • Establishing a well-functioning National System of Innovation • Policy tools • R&D support programs • TTGV, R&D loans (1992) • TUBITAK, R&D grants (1995)

8. Milestones • Institutional setup • Public R&D institutions • Universities • Turkish Patent Institute • Turkish Accreditation Agency • National Metrology Institute • Competition Authority • Innovation Relay Centers • Technoparks • etc

9. National system of innovation

10. National system of innovation

11. Policies in 1993-2008

12. Effects of R&D support programs • Effects of R&D support R&D support  More R&D • Additionality, competitive pressures Better R&D  Performance (productivity and growth)

13. R&D/GDP ratio

14. Number of R&D personnel

15. R&D expenditures by performer

16. R&D support

17. Methodology • Panel-data econometrics • Sample selection models • Propensity matching estimates • Difference-in-difference estimators • Taymaz, E. and Ucdogruk, Y. (2009), “Overcoming the Double Hurdles to Investing in Technology: R&D Activities of Small Firms in Developing Countries”, Small Business Economics (forthcoming). • Ozcelik, E. and Taymaz, E. (2008), “R&D Support Programs in Developing Countries: The Turkish Experience”, Research Policy (37): 258-275.

18. Data sources • Annual Survey of Manufacturing Industries • 10+ • 1980-2001 • About 10,000 establishments each year • R&D Surveys • All R&D performers • 1992-2005 • About 300 firms each year • TTGV and TIDEB clients • All TTGV and TIDEB clients • 1992-2005

19. Effects of R&D support programs • Large firms are more likely to conduct R&D. • Although SMEs are less likely to conduct R&D, R&D intensity is higher in small than large firms. • Technology transfer is likely to be a complementary activity for in-house R&D for large firms.

20. Effects of R&D support programs • R&D support has a strong effect in raising R&D intensity of R&D performers. • The effect of R&D support is even stronger for small firms. • R&D support has a positive impact on the employment of R&D personnel (no wage effect).

21. Effects of R&D support programs • When the market share of R&D support recipients increase, other firms (competitors) tend to increase their R&D intensity as well. • R&D performers are more productive. • R&D support has a positive impact on R&D in Turkish manufacturing (more R&D). • R&D support has a positive impact on the way firms conduct R&D (better R&D).

22. Effects of R&D support programs The case of Arçelik • Leading consumer durables producer in Turkey • Established in 1955 • Net sales in 2008: 3,574 million € • Exports: 50 % of sales • Number of employees in 2008: 18,000 • Leading innovative company • 101th firm in the world in patent applications (2007) • Received 10 % of all patents granted in Turkey • Established its R&D center in 1991 • Received R&D loans from TTGV since 1992

23. Strength and weaknesses • Strengths • Institutional setup • Diverse set of R&D supports • Public R&D and universities • Weaknesses • Lack of a long-term, coherent, systematic vision • Lack of coordination between policy organizations • Lack of policy learning • Too much emphasis on “supply-side” policies • No accumulation of technological capabilities

24. Economic crises in Turkey

25. Economic crises in Turkey

26. Economic crises in Turkey

27. Economic crisis in 2008 Measures • Reductions in tax rates (value added tax and special consumption tax – motor vehicles) • Reductions in labor cost (temporary work support, deductions in social security contributions) • Incentives for “clustering” for textiles • Short term employment in the public sector

28. Policy conclusions • Does Innovation and Technology Policy Pay-off? • Could it be more effective?

29. Thanks for listening…