State strategies in promoting automotive manufacturing investments – the case of Hungary and Türkiye

Authors: Tamás Szigetvári, Gábor Túry

Centre for Economic and Regional Studies – Institute of World Economics ELRN, Working Paper Nr. 269. December 2022

Abstract

The automotive industry is a key driver of the economic and technological catch-up process. Its development is therefore a priority in state development policy. This does not only mean direct financial support, but also tax policy or labour market regulation. Unilateral changes to the rules of employment, or policies leading to the dominance of labour-intensive activities, can in the long term undermine a country’s competitiveness, preventing it from adding value and moving up the global value chain.

In many respects, Hungary and Türkiye share similar characteristics. The automotive sector is of high strategic importance in both countries. The politico-economic set-up of the two countries also has many similarities in terms of authoritarian centralized decision-making and neoliberal policy elements (tax system, labour laws, social policy, etc). The same pattern of economic policies results in the development of a unilateral support policy in both countries. At the same time, due to the domestic capabilities of the automotive industry, many differences can be discovered in terms of results.

During the research, the authors point out the parallels between state strategies and evaluate the successes and the negative consequences of economic policy choices.