Facts on business dynamism in Turkey

Official URL: http://dx.doi.org/10.1016/j.euroecorev.2020.103490

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, 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 rates have started to rise, yet new business creation and economic activities of young firms have declined. We find suggestive evidence that the decline was due to the decline in access to global liquidity. Next, we use a model with endogenous market competition to identify the mechanisms and to perform a policy exercise. Our analysis suggests that providing support (e.g., R&D subsidy) to immediate followers, who can credibly challenge industry leaders, can foster competition and lead to faster sustainable growth.