Abstract:

This study empirically examines the role of government policies on regional efficiency/productivity in Turkey, with the emphasis on the effects of two major policy instruments: investment subsidy and public investment. Moreover, it investigates whether these public policies are subject to an equity-efficiency tradeoff. To this end, the study models the technical inefficiency component of total factor productivity that embodies these policy variables within the framework of a stochastic production frontier analysis. The results suggest that the policy tools are both successful in reducing technical inefficiencies and thus bring about an increased productivity in provincial manufacturing sector. The findings also show that the regional policies have a positive but negligible impact on the efficiency of the provinces with low performance while their efficiency impact is the highest on the provinces with medium performance, a result that points to the presence of an equity-efficiency tradeoff.

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