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MIXED NETWORKS IN BUILDING INNOVATIVE CAPABILITY IN DEVELOPING ECONOMIES: THE TURKISH CASE by Yesim Sungu-Eryilmaz Bachelor of City Planning (BCP), Middle East Technical University,1992 Master of City Planning (MCP) University of Pennsylvania,1997 Submitted to the Graduate Faculty of Public and International Affairs in partial fulfillment of the requirements for the degree of Doctor of Philosophy University of Pittsburgh 2006 UNIVERSITY OF PITTSBURGH GRADUATE SCHOOL OF PUBLIC AND INTERNATIONAL AFFAIRS This dissertation was presented by Yesim Sungu-Eryilmaz It was defended on July 20, 2006 and approved by Ilhan Tekeli, Professor, CRP, METU Phyllis Coontz, Associate Professor, GSPIA Clyde Mitchell-Weaver, Associate Professor, GSPIA Dissertation Advisor: Sabina E. Deitrick, Associate Professor, GSPIA ii Copyright © by Yesim Sungu-Eryilmaz 2006 iii MIXED NETWORKS IN BUILDING INNOVATIVE CAPABILITY IN DEVELOPING ECONOMIES: THE TURKISH CASE Yesim Sungu-Eryilmaz, PhD University of Pittsburgh, 2006 This study investigates the networking behavior of innovative firms in two regions in Turkey: Ankara and Istanbul. Specifically, it compares the geographical extent and characteristics of innovation networks between the two regions when firms carry out innovation, i.e. developing new or improved products or processes. Ego-centric networks of 89 firms were studied to investigate the geographical extent and the nature of innovation network ties. Based on these two regional case studies, three conclusions were made: (1) when firms in developing countries introduce technological innovation of products and/or processes, they engage in mixed networks, i.e. local and non-local (interregional and international) networks, (2) while local networks are important, non-local networks are used to access capabilities that are not present locally; these networks are not substitutes for each other but complementary, and (3) innovative firms in both types of regions (new vs. established) engage in mixed networks. However, the characteristics of these networks differ based on the region’s development level. It, therefore, makes sense, analytically as well as politically, to distinguish between different types of networks, so that a much broader array of policy implications can be made for building innovative capability from this wider perspective in developing countries. iv TABLE OF CONTENTS TABLE OF CONTENTS ...........................................................................................................................................V LIST OF TABLES................................................................................................................................................. VIII LIST OF FIGURES....................................................................................................................................................X LIST OF MAPS ........................................................................................................................................................ XI ABBREVIATIONS..................................................................................................................................................XII ACKNOWLEDGEMENTS .................................................................................................................................. XIII CHAPTER 1. INTRODUCTION: INNOVATION AND NETWORKING.......................................................1 1.1 AN OVERVIEW ............................................................................................................................................3 CHAPTER 2. INNOVATION, NETWORKING, AND TERRITORIAL DYNAMICS..................................5 2.1 INNOVATION AND ECONOMIC DEVELOPMENT.............................................................................................5 2.2 INNOVATION PROCESS...............................................................................................................................14 2.3 INTERACTIVE INNOVATION PROCESS: KNOWLEDGE AND INNOVATION NETWORKS ..................................17 2.4 TERRITORIAL INNOVATION MODELS.........................................................................................................19 2.4.1 Industrial districts................................................................................................................................20 2.4.2 Innovative milieu .................................................................................................................................22 2.4.3 New industrial spaces (NIS) ................................................................................................................23 2.4.4 Regional innovation system (RIS)........................................................................................................25 2.4.5 Commonalities in territorial innovation models..................................................................................26 2.5 NON-LOCAL DIMENSION IN TERRITORIAL INNOVATION MODELS .............................................................29 2.6 CONCLUSION: TOWARDS A NEW NETWORK COMPOSITION.......................................................................35 CHAPTER 3. RESEARCH METHOD ...............................................................................................................39 3.1 OBJECTIVES AND HYPOTHESES OF THE STUDY..........................................................................................39 3.2 RESEARCH METHOD: COMPARATIVE CASE STUDY ..................................................................................41 3.2.1 Selection of cases.................................................................................................................................42 3.3 DATA COLLECTION ...................................................................................................................................43 3.3.1 Unit of analysis and selection of establishments..................................................................................43 3.3.2 Data sources ........................................................................................................................................46 3.3.3 Data and variables...............................................................................................................................48 3.3.3.1 Firm characteristics.................................................................................................................................... 49 3.3.3.2 Innovation activities................................................................................................................................... 50 3.3.3.3 Innovation networks and their characteristics............................................................................................ 55 3.4 DATA ANALYSIS .......................................................................................................................................66 CHAPTER 4. RESEARCH SETTING................................................................................................................69 4.1 NATIONAL CONTEXT: INNOVATION AND INDUSTRIALIZATION POLICIES SINCE 1923................................69 4.1.1 Liberal era: 1923-1930........................................................................................................................71 4.1.2 State involvement in the 1930-1949.....................................................................................................73 4.1.3 Liberalism in 1950s .............................................................................................................................76 4.1.4 Import substitution industrialization: 1960-1980 ................................................................................79 v 4.1.5 Macro economic reforms and structural adjustment policies after 1980 ............................................82 4.2 OVERVIEW OF THE STUDY REGIONS..........................................................................................................90 4.2.1 Industrial geography in Turkey ...........................................................................................................90 4.2.2 Population size and change in Ankara and Istanbul ...........................................................................91 4.2.3 Economic trajectories and profiles......................................................................................................93 4.2.4 Innovation profiles.............................................................................................................................101 4.3 CONCLUSION...........................................................................................................................................103 CHAPTER 5. INNOVATION ACTIVITIES AND NETWORKING IN THE ANKARA REGION ..........104 5.1 WHAT ARE THE CHARACTERISTICS OF INNOVATIVE FIRMS IN ANKARA?................................................105 5.1.1 The Spatial distribution of firms in Ankara .......................................................................................108 5.1.2 Entrepreneurship and incubation ......................................................................................................112 5.1.3 Geography of markets........................................................................................................................116 5.2 THE LEVEL OF INNOVATION ACTIVITIES IN ANKARA .............................................................................118