The effect of public investment and firm based investment incentives on employment: a panel data analysis for Turkey

Abstract

This paper investigates the effects of two public policies, public investments and the firm-based investment incentives within the context of Law No. 5084, which considers the support of employers social security premium payments on the private sector employment at the NUTS 3 regional level (81 provinces) of Turkey for the period of 2002-2011. To the best of the authors knowledge, there appears to be no empirical study that deals with the effectiveness of both public in vestment and the investment incentive within the context of Law No. 5084 on employment at the regional level. The results indicate that both public investments and incentive investment have a positive impact on employment. Moreover, the estimation results show that provinces where firm-based incentive investment was applied within the context of Law No. 5084 indicate a significantly better effect on employment in the following year. However, during the interpretation of the analysis one should also take into account the faults of the implementation. On the other hand, public investment for infrastructure and education also affected employment positively.