Fiscal incentives for clustering activities: A model proposal for Turkey

In the process of formation of development policies, the clustering phenomenon which is defined as " the geographic concentration of the businesses and institutions located on the same value chain of production of goods and services in certain places" is increasingly more considered. The competitive advantages such as high innovation capabilities, skilled labour, and low cost production which is offered to the business located within the cluster is main reason of this situation. Some of the factors (like skilled labour) causing thesse competitive advantages arises spontaneously as the number of the businesses in the cluster increases. A number of other competitive advantage can ocur with the conscious cooperation activities (such as joint action for establish R&D center or infrastructure) of the business and institutions forming cluster. Due to market failure such as asymmetric information and external economies, so called clustering activities such as cooperation activities are not takes place spontaneously and arises at the level below than it should be. For this reason, in many countries including Turkey are developed fiscal incentives for clustering activities. In this sense developing an effective and efficent fiscal incentive model for Turkey, to eliminate market failures which are preventing clustering activities is tehe purpose of this dissertation. In first chapter of dissertation, the conceptual evolution of clustering, its subsequent factors and market failures which are preventing clustering activities are defined. In second chapter current appliations of public policies and fiscal incentive models aimed on clustering are analyzed. In third chapter, at first current clustering incentives in Turkey are evaluated and after that a new incentive model is proposed based on comperative anlyse of countries' policy applications and findings which are gathered by qualitatively research methods from field works. The model developed in our study consist of three components . At the first component of the study points out clustering activities enhancing the competitiveness for every potential cluster by Regional Development Agencies is to be defined. Agencies should start clustering initiatives with a proactive attitude and should produce a knowledge that will eliminate asymmetric information. Otherwise, no matter how attractive incentives will be given, the expanditure on clustering activities of the private sector will not ocur at the level should be. In that way, the development agencies will ensure the allocate incentives, to the clustering activities that have priorities. Second component of the study is develop a credit guarantees that will be alternative of non- repayable cash grants with the high cost to the public. The model developed in our studies' third component is create a special fiscal incentive for sector based venture capital firms which are will invest to the innovative start-ups in order to enable the development of high-tech clusters.