We investigate the impact of a set of place-based subsidies introduced in Turkey in 2012. Using firm-level balance-sheet data along with data on the domestic production network, we first assess the policy’s direct and indirect impacts. We find an increase in economic activity in industry-province pairs that were the focus of the subsidy program, and positive spillovers to the suppliers and customers of subsidized firms. With the aid of a dynamic multi-region, multi-industry general equilibrium model, we then assess the program’s impacts. Based on the calibrated model, we find that, in the long run, the subsidy program is modestly successful in reducing inequality between the relatively underdeveloped and more prosperous portions of the country. These modest longer-term effects are due to the ability of households to migrate in response to the subsidy program and to input-output linkages that traverse subsidy regions within Turkey.View the Full Working Paper
Micro- and Macroeconomic Impacts of a Place-Based Industrial Policy
WP 23-12 – In 2012, the Turkish government introduced a new set of subsidies aimed at reducing inequality between the poorer southeastern and richer western parts of the country. How successful was this policy?