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

Erol TaymazDepartment of EconomicsMiddle East Technical UniversityAnkara 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

0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

1950 1960 1970 1980 1990 2000 2010

US

= 1

Turkey Korea

Relative productivity (hour worked)

0.00

0.10

0.20

0.30

0.40

0.50

0.60

1950 1960 1970 1980 1990 2000 2010

US

= 1

Turkey Korea

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

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

Objectives Related ProgramsRaise private R&D and innovation

Risk Sharing Facility Support, Support Programme for the first R&D Projects of SMEs, Environmental Technologies Support Programme, Energy Efficiency Support Programme, Renewable Energy Support Programme, R&D Tax Exemption, Support for R&D Investment, State Support for R&D (TTGV), State Support for R&D (TUBITAK-TEYDEB), Technology Research and Development Support

Increase the commercialization of knowledge by universities and public research institutes

Industrial R&D and innovation support (San-Tez) of MoIT, Patent Support Program, Scientific and Technological Cooperation Networks and Platforms Support Programme (ISBAP), Commercialization Project Supports, Support for Establishment of Technoparks (the Law on Technology Development Zones), Joint Technology Development Projects, Young Entrepreneur Development Programme, Industrial Property Rights Support

Expand the number of science based start-ups

Support Programme for Technology- and Innovation-focused Entrepreneurship, Start-up Support, Pre-Incubation Support Programme, New Entrepreneur Support, Establishment of Technology Development Centers (TEKMERs)

Augment technology diffusion (including ICT use)

Environmental Technologies Support Programme (also for private R&D above), Energy Efficiency Support Programme (also for private R&D above), Support for Hiring Qualified Personnel by SMEs, ICT Support, Machinery/Equipment Support for Common Use by SMEs, Training Support, Consultancy Support for SMEs

Effects of R&D support programs

Effects of R&D supportR&D support

More R&D

Additionality, competitive pressures

Better R&D

Performance (productivity and growth)

R&D/GDP ratio

0.0

0.2

0.4

0.6

0.8

1.0

1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

(per

cen

tag

e p

oin

t)

Old series New series

Number of R&D personnel

0

5

10

15

20

25

30

35

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Nu

mb

er o

f p

erso

nn

el p

er 1

0000

peo

ple

R&D personnel Researcher

R&D expenditures by performer

0

500

1000

1500

2000

2500

3000

3500

2000 2001 2002 2003 2004 2005 2006 2007 2008

(mill

ion

TL

, 200

8 p

rice

s)

Public Private Higher education

R&D support

0

100

200

300

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

R&

D s

up

port

(m

illio

n T

L, 2

008

pric

es)

0

1

2

3

4

5

6

7

8

9

10

Sha

re o

f R

&D

su

bsid

ies

(%)

R&D support

Share of R&D subsidies

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.

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

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 TurkeyIMPORTS

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0 1 2 3 4 5 6 7 8 9 10 11 12

1994 2001 2008

Economic crises in TurkeyEXPORTS

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0 1 2 3 4 5 6 7 8 9 10 11 12

1994 2001 2008

Economic crises in TurkeyShares of electricial machinery and motor vehicles in total exports

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Electrical machinery

Motor vehicles

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…