Abstract:

This paper investigate the determinants of investment incentives at the regional level in Turkey during the period 2001-2008. So far, many studies have focused on the effect of incentives on the economic growth, employment or location decision. However, there has not been an empirical analysis exploring the regional determinants of investment incentives. Therefore, the purpose of this paper is to explain what determines the allocation of investment incentives in Turkish provinces. Using a set of regression models, the paper tests several hypotheses related to the role of local and regional characteristics in explaining spatial differentiation in incentives among provinces. The empirical results, on the one hand, indicate that the spatial distribution/ allocation of regional incentive are explained by the level of income, the presence of private industry investment, trade openness, political/electoral power, the ideological tendency of the government, and regional policy. On the other hand, unemployment and openness to foreign investment are not significant determinants of incentive at regional level. These results suggest that incentives at regional level are determined not only by economic factors, but also by political and institutional factors. In conclusion, the paper informs policymakers about the potential opportunities and threats as well as determining factors when designing regional incentive strategies

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