Research Article
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The Efficacy of Interest Subsidies as an Investment Incentive Instrument

Year 2023, Volume: 3 Issue: 2, 12 - 26, 30.12.2023
https://doi.org/10.61192/indpol.1358282

Abstract

Purpose: Since interest subsidies have always been a crucial part of investment policy in Türkiye, the study focused on the efficacy of interest subsidies as an investment incentive.
Methodology: First, the interest and cash-flow sensitivity of the investment expenditure are explored before touching upon the literature on the interest and credit subsidy sensitivity of the investments without omitting the influential financing parameters. Then, financing parameters in sectoral balance sheets and the financing outlook of the Turkish companies are examined to infer which type of credit subsidy should be preferred, before bringing concrete observations from the recent capital formation trend.
Findings: First, funding conditions, economic cycles and market frictions stemming from informational asymmetry influence the efficacy of the interest subsidies. Second, interest subsidies only become effective when economic and financial volatility surge, which implies a lesser effect than quasi-tax incentives. Third, monetary and interest subsidy authorities should coordinate. Finally, the credit guarantee mechanism is more powerful than interest subsidies to achieve policy goals since credit accession is a way bigger problem for Turkish companies.
Originality: To my knowledge, this is the first article ever written specifically examining the efficacy of interest subsidies in Türkiye, although there were many studies focusing on investment incentives in general.

References

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Year 2023, Volume: 3 Issue: 2, 12 - 26, 30.12.2023
https://doi.org/10.61192/indpol.1358282

Abstract

References

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  • Almeida, H., & Campello, M. (2010). Financing Frictions and The Substitution Between Internal And External Funds. Journal of Financial and Quantitative Analysis, 45(3), 589-622.
  • Altay, A., & Karabulut, Ş. (2017). Turkey’de mali teşvik sistemi ve yatırımlara sağlanan mali teşviklerin değerlendirilmesi. Adnan Menderes Üniversitesi Sosyal Bilimler Enstitüsü Dergisi, 4(4), 189-202.
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  • Atiyas, I., & Bakış, O. (2014). Aggregate and sectoral TFP growth in Turkey: a growth accounting exercise (Turkey’de toplam ve sektörel toplam faktör verimliliği büyüme hızları: bir büyüme muhasebesi çalışması). İktisat, İşletme ve Finans, 29(341), 9-36.
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  • Cardoso, D. F., Teixeira, E. C., Gurgel, A. C., & Castro, E. R. D. (2011). Effects of the rural credit subsidy on economic growth and welfare of Brazilian regions (No. 1513-2016-131757, pp. 1-21).
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  • Correia, I., De Fiore, F., Teles, P., & Tristani, O. (2016). Credit subsidies (No. 1877). European Central Bank. Cull, R.; Li, W., Sun,B., and Xu, L.C. (2015). “Government Connections and Financial Constraints: Evidence from a Large Representative Sample of Chinese Firms”, Journal of Corporate Finance, 32, 271-294
  • Çonkar, M. K., Canbaz, M. F., & Arifoğlu, A. (2018). Mevduat Ve Katilim Bankalari Kredilerinin Ekonomik Büyüme İle İlişkisi: Ekonometrik Bir Analiz. Afyon Kocatepe Üniversitesi İktisadi Ve İdari Bilimler Fakültesi Dergisi, 20(1), 1-11.
  • De Bruyne, G., & Van Rompuy, P. (1982). The impact of interest subsidies on the inter-regional allocation of capital: An econometric analysis for Belgium. Regional Science and Urban Economics, 12(1), 121-138.
  • Dailami, M., & Kim, E. H. (1994). The effects of debt subsidies on corporate investment behavior: The Korean experience. Pacific-Basin Finance Journal, 2(1), 1-21.
  • De Maeseneire, W., & Claeys, T. (2012). SMEs, foreign direct investment and financial constraints: The case of Belgium. International Business Review, 21(3), 408-424.
  • De Meza, D., & Webb, D. C. (1987). Too much investment: a problem of asymmetric information. The quarterly journal of economics, 102(2), 281-292.
  • Demir, F. (2009). Financial liberalization, private investment and portfolio choice: Financialization of real sectors in emerging markets. Journal of Development Economics, 88(2), 314-324.
  • Demirgüneş, K. (2016). 2008 Küresel Krizi Sonrasında Küçük Ve Orta Ölçekli İşletmelerde Ticari Krediye Erişimin Belirleyicileri: Turkey Örneği. Proceedings E-Book Ii, 82.
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  • Dinh, T. M., Malesky, E., To, T. T., & Nguyen, D. T. (2013). Effect of Interest Rate Subsidies on Firm Performance and Investment Behavior during Economic Recession: Evidence from Vietnam. Asian Economic Journal, 27(2), 185-207. Doruk, O. T. (2017). Determinants of investment in the manufacturing sector in Turkey. PhD Thesis Delivered on 30.11.2017. Accesible on: http://academicrepository.khas.edu.tr/xmlui/bitstream/handle/20.500.12469/1830/0097695OmerTugsalDoruk.pdf?sequence=1&isAllowed=y
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  • Egimbaeva, B. (2012). Corporate Investment and Cash Flow Sensitivity: Evidence From Turkey (Master Thesis Dissertation, DEÜ Social Science Institute).
  • Fazzari, S. and Mott, T. (1986-1987). “The Investment Theories of Kalecki and Keynes: An Empirical Study of Firm Data, 1970-1982”. Journal of Post-Keynesian Economics, 9:2,171-187.
  • Fazzari, S., Hubbard, R. G., & Petersen, B. C. (1987). Financing constraints and corporate investment (No. w2387). National Bureau of Economic Research.
  • Fazzari, S. M., and Petersen, B.C. (1993) „Working Capital and Fixed Investment: New Evidence on Finance Constraints,‟ RAND Journal of Economics, XXIV, 328–342
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There are 94 citations in total.

Details

Primary Language English
Subjects Development Economics - Macro
Journal Section Research Articles
Authors

Emir Çelebi 0000-0003-4012-6911

Early Pub Date December 30, 2023
Publication Date December 30, 2023
Published in Issue Year 2023 Volume: 3 Issue: 2

Cite

APA Çelebi, E. (2023). The Efficacy of Interest Subsidies as an Investment Incentive Instrument. Industrial Policy, 3(2), 12-26. https://doi.org/10.61192/indpol.1358282