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

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

Relative GDP per capital

Relative productivity (hour worked)

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

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

Milestones Policy commitment Policy conception Policy tools 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)

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

National system of innovation

National system of innovation

Policies in 1993-2008

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

R&D/GDP ratio

Number of R&D personnel

R&D expenditures by performer

R&D support

Methodology Panel-data econometrics Propensity matching estimates 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.

Data sources Annual Survey of Manufacturing Industries R&D Surveys 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

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.

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).

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).

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

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

Economic crises in Turkey

Economic crises in Turkey

Economic crises in Turkey

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

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

Thanks for listening…