Working Paper: CEPR ID: DP13999
Authors: Ufuk Akcigit; Yusuf Emre Akgunduz; Elif Ozcan Tok; Seyit Mumin Cilasun; Fatih Yilmaz
Abstract: In this paper, we investigate various trends on competition and business dynamism in the Turkish manufacturing sector. More specifically, using micro level administrative data sets of firm balance sheets, credit registry and social security records, we focus on moments such as firm entry, exit, profitability, worker reallocation, labor share, labor productivity and credit distributions, among several others. Our results indicate that business dynamism in the Turkish manufacturing sector was relatively stable and even improving until 2012 but has been declining since then. We find that market concentration and exit rates have started to rise, yet new business creation, labor share of output and economic activities of young firms have declined. Using a model with endogenous market competition, we show that a adverse shock to cost of R&D investment can explain these empirical trends. We identify increases in financing costs after 2012 of followers as a potential mechanism for our findings in Turkey. We next perform a policy analysis with our model which suggests that providing support (e.g., R&D subsidy) to immediate followers can undo the adverse effects of the negative shock to financing costs and therefore foster competition and faster growth.
Keywords: business dynamism; market concentration; competition; turkish economy
JEL Codes: E22; E25; L12; O31; O33; O34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| adverse shock to the cost of R&D investment (O39) | decline in business dynamism (L16) |
| increases in financing costs for firms after 2012 (G32) | higher prices charged by market leaders (D43) |
| increases in financing costs for firms after 2012 (G32) | reduced investment in new technologies (O14) |
| increases in financing costs for firms after 2012 (G32) | slowdown in productivity growth (O49) |
| adverse shock to the cost of R&D investment (O39) | increases in market concentration (L11) |
| increases in market concentration (L11) | decline in labor share of output (E25) |
| support such as R&D subsidies (O38) | counteract negative impacts of financing costs (G32) |