State Capacity and the Role of Industrial Policy in Automobile Industry: a Comparative Analysis of Turkey and South Korea

Abstract

Automobiles account for a significant share of global output and trade. Since automobile manufacturing is widely considered to be an engine of economic development, a number of countries, including Turkey and South Korea, have pursued industrial policies in the automobile sector, with mixed success. While the two countries started from similar initial conditions and both devised and implemented automobile industrial policies, the outcomes were very different. The Korean automobile sector has far outperformed its Turkish counterpart. The difference in policy outcomes begs an obvious question of why that happened. This paper’s central objective is to find answers to that question by analyzing and comparing industrial policies in the automobile sector. To do so, we develop a list of qualitative and quantitative criteria in order to assess and explain the different outcomes. We base our analysis on a review of the historical development of the automobile sector and policies in both countries. Our analysis suggests that differences in state capacity and hence quality of industrial policies help explain the differential performance of the automobile industry in the two countries.