EVOLUTION OF THE PRODUCT SPACE AND A NEW PROPOSAL FOR TURKEY’S EXPORT INCENTIVE SYSTEM OF THE PRODUCT SPACE EVOLUTION EVOLUTION OF THE PRODUCT SPACE AND A NEW PROPOSAL FOR TURKEY’S EXPORT INCENTIVE SYSTEM 768 759 736 737 .tr 755 431 620 728 v 622 407 623 606 607 149 748 764 462 621 625 713 o 632 619 154 767 750 649 618 409 715 758 309 459 517 689 717 735 646 648 653 143 664 752 386 747 497 645 613 647 403 457 615 633 630 396 585 628 612 515 608 204 458 642 357 397 144 662 616 644 554 663 712 .sbb.g 513 617 400 762 766 46 421 629 402 643 w 417 390 751 652 631 761 398 710 520 126 412 540 654 401 410 395 716 720 391 239 708 627 498 121 685 711 703 641 650 256 359 120 383 763 415 371 ww 774 241 704 315 320 80 702 592 624 151 452 249 705 701 240 424 706 734 638 155 456 388 509 399 427 351 756 611 634 700 519 657 454 697 709 635 559 148 698 753 66 426 444 745 147 731 521 692 651 558 423 694 312 416 602 81 695 699 524 157 36 392 358 422 723 729 60 54 746 508 406 85 209 690 730 605 345 86 610 523 437 688 696 205 356 573 434 514 707 203 64 442 510 255 455 348 420 350 77 30 555 570 291 361 404 393 394 201 535 460 73 389 343 118 556 156 347 639 116 71 346 26 757 577 448 575 760 614 687 296 693 362129 349 145 65 586 669 342 772 25 574 3 355 344 101 539 224 353 405 714 79 461 564 438 259 182 742 600 329 289 170 482 372 317 674 518 50 31 557 512 670 70 88 593 661 10 56 471 146 130 691 680 321 52 516 732 326 214 479 413 686 445 579 352 55 199 228 626 484 102 29 576 83 316 583 447 104 215 159 235 322 451 136 572 328 360 604 494 446 449 430 103 542 63 506 684 433 722 609 35 128 124 727 272 281 740 290 478 69 167 681 465 566 659 253 590 530 528 245 470 387 453 57 738 163 584 443 481 78 428 202 314 718 480 369 89 133 534 286 525 744 436 28 550 172 171 486 655 466 32 499 153242 123 158 212 166 354 283 770 189 282 177 439 251 682 257 678 726 724 551 580 603 527 114 72 6 263 640 488 109 53 327 754 27 511 232 233 469 218 264 262 483 463 208 363 299 220 677 666 473 507 381 594 526 284 68 411 122 538 265 178 578 319 505 58 339 591 549 216 107 188 366 238 39 4 248 51 223 92 531 529 222 440 304 74 111 303 261 477 236 219 302 667 277 568 246 749 100 587 119 197 364 637 553 552 305 733 367 206 200 106 599 174 221 268 341 561 414 673 500 280 665 125 49 274 108 137 16 503 179 24 683 117 325 150 162 217 67 313 672 467 260 475 502 226 14 210 234 382 225 96 168 266 195 273 164 743 62 598 533 532 84 38 112 370 596 250 115 161 95 110 563 725 658 543 258 9 165 660 544 152 522 560 668 247 298 376 94 229 769 191 207 169 97 59 13 176 192 23 134 270 425 227 211 243 432 491 377 589 99 33 160 468 184 105 175 318 2 252 464 332 297 419 546 333 308 671 271 567 338 90 601 185 181 490 408 495 501 194 306 196 368 173 679 180 582 292 93 17 87 34 18 378 142 193 487 139 496 429 131 276 493 775 41 676 537 279 186 275 15 536 489 135 675 765 595 562 340 138 237 183 187 8 190 565 597 300 132 230 11 450 485 492 636 98 43 61 472 231 435 581 293 374 373 331 40 140 198 569 91 474 76 336 384 267 311 365 721 269 504 42 113 375 719 323 476 656 334 301 310 254 739 20 12 1 213 5 307 7 285 244 278 47 330 588 141 548 545 127 335 547 541 48 771 294 37 337 385 418 380 571 773 324 295 44 21 19 441 379 45 287 75 22 288 82 741 GENERAL DIRECTORATE OF ADMINISTRATIVE SERVICES DIVISION OF KNOWLEDGE MANAGEMENT AND DOCUMENTATION April 2020 Necatibey Cad. No: 110/A 06570 ANKARA-TURKEY Sezai ATA Phone +90 (312) 294 50 00 Fax: +90 (312) 294 52 98 ISBN NO : 978-605-7751-36-2 GENERAL DIRECTORATE OF ECONOMIC MODELING AND CONJUNCTURE EVALUATION PUBLICATIONS OF PRESIDENCY OF STRATEGY AND BUDGET ARE FREE OF CHARGE AND CANNOT BE SOLD. APRIL 2020 Publication No: 0017 EVOLUTION OF THE PRODUCT SPACE AND A NEW PROPOSAL FOR TURKEY’S EXPORT INCENTIVE SYSTEM Sezai ATA ECONOMIC MODELLING AND CONJECTURAL EVALUATIONS GENERAL DIRECTORATE MARCH 2020 ISBN 978-605-7751-36-2 No permission is required from the Presidency of Strategy and Budget to use as a publication and reference as long as the source is cited. This document has been published in 500 copies. ABSTRACT EVOLUTION OF THE PRODUCT SPACE AND A NEW PROPOSAL FOR TURKEY’S EXPORT INCENTIVE SYSTEM What a country can produce and export says a lot about its development level. All countries are in a race toward producing most cutting edge products. Not all countries are so successful as can be deduced from limited quality of their export baskets. Products can be broadly organized as low-medium-high tech. But as researchers showed in the last decade, under closer scrutiny products shows an intricate network structure called Product Space. Each country only produces and exports a sub-network of Product Space and evolution of this sub-network says a lot about the development of the country. Many, if not all, countries have complicate export incentive schemes but none seems to have a broad and product-based incentive system in which a product is promoted so long as it helps the country reaching the cutting edge regions of Product Space. This book explores the idea that the evolution of Product Space for a country is predictable and that it is controllable by an appropriate incentive system. Keywords: Product Space, Diffusion, Export Incentive System, Industrial Policy ii ÖZET ÜRÜN UZAYININ GELİŞİMİ VE TÜRKİYE'NİN İHRACAT TEŞVİK SİSTEMİ İÇİN YENİ BİR ÖNERİ Ürettiği ve ihraç ettiği ürünler bize bir ülkenin gelişmişlik seviyesi hakkında çok şey söyler. Tüm ülkeler, en gelişmiş ürünleri üretmeye yönelik bir yarış içindedirler. İhracat sepetlerindeki ürünlerden de görüleceği gibi tüm ülkeler bu konuda aynı derecede başarılı değildir. Ticarete konu ürünler kabaca düşük-orta-yüksek teknoloji olarak sınıflandırılabilirler. Ancak araştırmacıların son on yılda gösterdiği gibi, daha yakından incelendiğinde ürünler Ürün Uzayı denilen karmaşık bir ağ yapısı sergilemektedir. Her bir ülke bu Ürün Uzayı’nın sadece bir alt kümesini ihraç etmekte ve bu ağ aynı zamanda ülkenin kalkınma seviyesi hakkında çok şey söylemektedir. Ülkelerin hemen hemen tamamı karmaşık ihracat teşvik sistemlerine sahiptir. Ancak, hiçbiri ülkenin Ürün Uzayı'nın merkezi bölgelerine ulaşmasına yardımcı olacak Ürün Uzayı odaklı bir teşvik sistemine sahip değildir. Bu kitap, bir ülke için Ürün Uzayı’nın gelişiminin öngörülebilir ve aynı zamanda uygun bir teşvik sistemi ile kontrol edilebilir olduğu fikrini savunmaktadır. Anahtar Kelimeler: Ürün Uzayı, Difüzyon, İhracat Teşvik Sistemi, Sanayi Politikası iii In loving memories of Recai ATA (1971-2016) Senanur ATA (2005-2016) iv PREFACE They say there are two kinds of people: one who tries to understand the world and the other who tries to change the world. Economists in general try to combine them. As an economist, I want to do the same thing in this book. That is first understand a small part of the economy and then try to change it by offering a relevant policy framework. From the viewpoint of an economist, the true purpose of a scientific research must be to change the world that we live around in a better way. In this book, I explain how the export basket of a country changes with time and what are the important policies that make the difference between a high-tech complex basket and a simple low-tech basket. I also make policy recommendations on what we can do to speed up the process so that we can catch and surpass the countries with sophisticated export baskets. This work is a book version of the Ph.D. thesis I completed at Ankara Yıldırım Beyazıt University, The Institute of Social Sciences, Department of Economics in November 2018. I started to work on this project in 2016 which mainly uses product space methodology. After getting preliminary results, I presented them to my colleagues and top executives in Ministry of Development. The 2018-2020 Medium Term Program was the first policy document that included a measure on improving the investment incentive system using the Product Space methodology. In the brainstorming stage of 11th Development Plan, Presidency of Strategy and Budget arranged multiple meetings with line ministries and other public and private organizations to discuss the new road map of industrial policy for Turkey.