INSTITUTIONAL ASPECTS OF REGIONAL/LOCAL ECONOMIC
DEVELOPMENT
A THESIS SUBMITTED TO
‘THE GRADUATE SCHOOL OF NATURAL AND APPLIED SCIENCES,
OF
‘THE MIDDLE EAST TECHNICAL UNIVERSITY
15 469
‘ne. yOKsEKb¢nerm KURDLD
IRASVON BITREL
IN PARTIAL FULFILLMENT OF THE REQUIREMENTS FOR THE DEGREE OF
DOCTOR OF PHILOSOPHY
IN
‘THE DEPARTMENT OF CITY AND REGIONAL PLANNING
MARCH 2002Approval of the Graduate School of Natural and Applied Sciences
T certify that this thesis satisfies all the requirements as a thesis for the degree of Doctor of
Philosophy.
‘Assoc. Prof. Dr. Baykan GUNAY
Head of Department
‘This is to certify that we have read this thesis and that in our opinion itis fully adequate,
in scope and quality as a thesis for the degree of Doctor of Philosophy.
aaa
Prof. Dr. Ayda ERAYDIN
Supervisor
Examining Committee Members
Prof. Dr. ilhan TEKELL
Prof. Dr. Ayda ERAYDIN
Prof. Dr. Yakup KEPENEK
Dog. Dr. Murat GOVENG
Dr. Asuman ERENDIL
ie BORED
asABSTRACT
INSTITUTIONAL ASPECTS OF REGIONAL/ LOCAL ECONOMIC
DEVELOPMENT
Gzelgi, Tanyel
PHD, Department of City and Regional Planning,
‘Middle East Technical University of Ankara, Turkey
Supervisor: Prof. Dr. Ayda Eraydin
‘March 2002, 284 pages
‘The main aim of the thesis is to understand the influence of institutional factors on the
regional/ local economic development prospects. The basic statement is that capitalist
development is entering a phase in which regions becoming the primary unit of spatial
organization and production and the issues of regional regulation have a crucial role to
maintain economic development in the new global competition.
‘The scope of this study is
to examine changing general theoretical ideas about regional development processes
~to review some of the important changes which have occurred in twentieth century
affecting the environment in which regional economies operate; the implications of
‘transformations in the global production and regulation mechanisms
to develop a framework for analysing the institutional structure of a locality
-to discuss the institutional aspects of local economic development through the
experiences of world and Turkish cases
-to search for a new model
‘The study will focus on a set of theoretical tools involving interdependent dimensions of
itiregional economic development such as regulationist theory, institutional economics,
evolutionary economics, economic geography. Along these theoretical perspectives, the
importance of an institutional atmosphere in the creation and maintenance of an
agglomeration will be emphasised through the case of Denizli, a new growth node in
Turkey.
‘The handling of the case Denis
arrangement of an agglomeration.
will be an attempt to explain the institutional
‘The methodology of the study is, theoretical literature survey, comparative analysis of
different related cases with reference to available literature, statistical data of different
institutions and publications, field surveys and in-depth interviews.
Key Words: Local economic development, new institutionalism, institutional economics,
evolutionary economics, industrial districts, socio-spatial, socio-economic geography.
ivOz
BOLGESEL/YEREL EKONOMIK GELISMENIN KURUMSAL YONLERL
Gzelgi, Tanyel
Doktora, Sehir ve Bélge Planlama Bolimi
Orta Dogu Teknik Universitesi Ankara, Tarkiye
‘Tez Yéneticisi: Prof. Dr. Ayda Eraydin
‘Mart 2002, 284 sayfa
‘Tezin ana hedefi kurumsal faktdrlerin bilgeseV/yerel ekonomik gelisim tizerindeki etkisini
anlamaktir. Tezin temel Gnermesi; kapitalist gelisimin, bilgelerin mekansal organizasyon
ve firetimde temel birimler oldugu bir agamaya girmekte oldugu ve yeni kiresel rekabet
ortaminda bélgese! diizenleme konularmn ekonomik geligimin devam etirilmesinde
yagamsal rol oyna,
‘Bu galtgmanin kapsams;
- bolgesel geligim streglert ile ilgili degigen genel teorileri incelemek,
- yirminci ytizytlda meydana gelen, bélgesel ckonomileri etkileyen degisimleri ve
kareseltretim ve dizenleme mekanizmalanindaki donusumleri incelemek,
= yerel ekonomilerin kurumsal yapisim incelemek igin getgeve gelistirmek,
= yerel ekonomik geligmenin kurumsal yéniind dinya ve Tirkiye Gmekleri
sgergevesinde tartigmnak
~ yeni bir model aragurmaktir.
Galigma, dizenlemeci teori, kurumsal ekonomi, ekonomik cografya gibi blgesel
ekonomik geligimin birbirine bagh boyutlanin igeren teorilerden faydalanmaktadir, Bu
teorik bakig agilarinn yaninda, yxgiimanmn yaratiimasinda ve devambilijinda kurumsal
atmosferin Gnemi, TUrkiye’de yeni bir blyllme odag olan Denizli Omegi ilevurgulanmaktadi, Denizli émeginin ele almmast, bir yifilmann kurumsal
dzenlenmesinin incelenmesine bir deneme olacaktir.
Celigmanin metodolojisi, teorik literatir arastirmasi, mevcut literature referansh benzer
Smeklerin kargilagtirmal: analizi, farkl: kurumlarn ve yaymlarin istatistiki verileri, alan
arastrmalant ve derinlemesine gOrdgmelerdir.
Anahtar Kelimeler: Yerel ekonomik geligme, yeni kurumsallagma, kurumsal
‘ckonomi,evrimei ekonomi, sanayi bolgeleri, sosyo-mekansal, sosyo-ekonomik cografyaACKNOWLEDGEMENTS
Tam deeply grateful to my supervisor Prof. Ayda ERAYDIN. Without her invaluable
comments, encouragement and patience this study would not have been completed.
1 owe thanks to several people I met in Denizli who helped me a lot during the field
surveys.
Special thanks are due to my fiends Gigdem VAROL, Bilge Amat KOROGLU and
Burak BEYHAN for their valuable help throughout the field surveys and also for their
insightful comments on the drafts of the study.
‘Lam very grateful to Tunga KOROGLU for his worthy cooperation in the arangement of
the study.
T would also like to thank to Ertugrul ECERAL for his moral support throughout the
study. Finally, I would like to thank to my family for their constant support throughout my
edueation life.‘TABLE OF CONTENTS
ABSTRACT...
62.
ACKNOWLEDGEMENTS:
‘TABLE OF CONTENTS.
LIST OF TABLES
LIST OF FIGURES.
CHAPTER
I. INTRODUCTION.
L1 Aim and Scope...
12 Theoretical Framewor!
13 Outline...
Il, REGIONAL ECONOMIC DEVELOPMENT IN THE TWENTIETH
‘CENTURY.
ILA Phases Of Accumulation And Regulation Systems ...
IL1.1 Accumulation Systems...
IL.1.2 Regulation Systems.
TL.1.2.1 International and Ne
111.22 Regional Regulation
1.1.2.2:1 Traditional Regional Regulation
1L1.2.2.2 Newly Emerging Regional Regulation: New
Regionalism.
112 Economie Thoughts And Regional Economie Development
11.2.1 Traditional Regional Economic Development Theories.
11.2.2 Main Schools and Models Of Regional Economic Development In
‘The Post-Fordist Debate.
1.2.2.1 Endogenous Development Approach ..
112.2.1.1 Regulation, Flexible Specialisation and
Californian Schools.
1L2.2.1.2 Industrial District-New Industrial Spaces Model .
iv
xiii
ional Regulation ....11.2.2.2 Evolutionary Approach- Territorial Innovation Models,
12.23 Communitarian Approach .
IML. INSTITUTIONAL APPROACH TO REGIONAL/LOCAL ECONOMIC
DEVELOPMENT. 7
Lt Institutional Paradigm
TIL1.1 New Institutional Economics, Evolutionary Economies.
11.1.2 What is Institution, Organisation, Institutional Change?
I1L2 Institutional Approach to Economic Geography
112.1 Institutional Approach to Agglomeration and Proximity... .
12.1.1 Localised Competences/Capabilites.. svn 62
111.2.1.2 Institutional Thickness/Network Density.
1112.1.3 Embeddedness.
1.2.1.4 Network Extemali
11L2.1.5 Governance
1112.2 Institutional Approach to Territorial Innovation: Knowledge
Creation and Learning . ri
Iy. INDUSTRIAL DISTRICT MODEL. P
IV.1 Stylised Facts of the Industrial District Model..
IV.2 Structural Comparison of Some Successful Industrial Districts.
IV.3 Institutional Factors That Leads to Success in Industrial Districts.
1V.4 Current Problems and Future Prospects of Industrial Districts...
METHODOLOGICAL ANALYTICAL AND POLICY IMPLICATIONS
OF INSTITUTIONAL APPROACH TO ECONOMIC GEOGRAPHY.
‘VI. DENIZL{ CASE: INSTITUTIONAL ASPECTS OF LOCAL
ECONOMIC DEVELOPMENT. 123
‘VL1 Methodology. 123
V1.1 Empirical Modelling of the Case Study. 124
‘VL1.2 Literature Survey, Official Data Collection, 131
VL Field Survey... 132
‘Vi.1.4 Methodological Deficiencies. 133
‘VL2 Denizli As A New Growth Node in Turkey: Comparative Analysis Of
Denizli’s Existing Socio-Economic Structure.
‘VL3 The Evolution Of Denizli’s Local Socio-Economic Development
History Within The Framework Of Turkey's Socio-Economic
Development History
‘VL3.1 From the establishment ofthe Republic to 1960...
‘VL3.2 1960s to 1980- Planned Period13.3 After 1980- A New Mode of Regulation. . 156
VL3.4 Historical and Relational Analysis of Some Leader Firms.
VL4 Proximity Dynamics: Spatial Agglomeration of Related Firms and
Industries... 166
‘VIA4.1 Sectoral Composition 166
‘VL42 Analysis of Fim Structures. 169
‘V4.3 Production Organisation, AB
176
1183
V4.4 Knowledge and Technology Development...
VLS Institutional Environment.
VLS.1 Institutional Change: “Institutional Thickness” A Crucial Aspect
of Development or a Barrier to Adapting Changing Conditions?
VLS.1.1 Initial Phase.
IV.5.1.2 Growth Phase
‘VLS.1.3 Maturation Phase..
VLS.1-4 Crises Phase.
VL5.2 Institutional Interpl
Overload? Incapabili
VLS.2.1 Industry support Unit.
VL5.2.2 Interest Associations.
‘VLS.2.3 Public-Private Partnerships.
‘VL5.3 Institutional Conflicts-Power Struggles: Domination or Coalition? ..221
‘VLS.4 Local Embeddedness: Acting as Resistance to Change or Function
‘as a Mechanism to Cope With.
‘VL5.4.1 Networks of Interpersonal Relations- Family, “Hemset
Religious Community Relations.
‘V1.5.4.2 Entrepreneurial and Labour Structure. 226
‘V15.4.3 Informal Conventions-Habits, Routines 231
VLS6 Evaluation... 3A
VIL CONCLUSION
REFERENCES.
APPENDICES
255LIST OF TABLES
TABLE
1, Phases of regulation and accumulation in the twentieth century.
2. Regulation Systems.
3. Changes in Se funtion a different evel of polities centralization under
flexible accumulation..
4, Propulsive Industries and New Industrial Spaces...
‘Main Schools and Models Of Regional Economic. Developmen In The Post-
Fordist Debate.
Institutional Paradigm and the Main Contributors.
(Characteristics of Industrial District Model, Italian Industrial Districts,
{nual Closer in LDCs and hs Dynamic Fectos That fet he
Performance of Industrial Clusters :
8. Comparison of Some Successful Cases of Industrial Districts.
9. Examples of real business services.
10, Ervet System and Shareholding.
11, Key actors of regional/local economic development
12, Socio-economic development evel ofMRs and NGNs among provinos of
Turkey...
13, Share of Manufacturing Industry Indicators by Years.
14, SME (10-249) Growth 1992-1997 %
15. GDP per capita and GDP per capita growth...
16. Exports per capita 1993-1994 (dolar)
17. Agglomeration index of sector.
18, Diversification Index...
19, Producer Services Agglomeration Index.
20, Subcontracting Relations
21. Labour Indicators.
22, Demographic structure.
23, Human Capital and Education Capacity24, Cultural and quality of life level.
25, Organisational Capacity.
26, Technological capability and Innovativeness...
21. Small artisan cooperatives in Denizli in 1946...
28. Worker firms in Denizli
29, Exports registered at the Denizli Chamber of Commerce, 1980-199.
30, Industiaisation History of Some Leader Families on.
31. The Share of Sectors in Total Industry in 1979 and in 1996.
32. Establishment date of existing firms (10+) according to sectors,
33. The size distribution of firms according to years.
34, Establishment date of firms (registered to Chamber of Industry) according to
size distribution
35. The share of exports according to size-group of firms
36, Firms in Denizli which have been in the 500 biggest firms in Turkey...
37. The percentage share of subcontracting production value to total production
‘value in firms according to size distribution and sectors in 1996.
17S
38, The share of exports registered in the chamber of trade according to products .176
39, Research activites of enterprises. screed TD
40. The sources of technology used in the main production units. 180
180
41, Technology development activities between 1990- 1996 %.
42, Technology and standards used in the enterprises.
43, How technology is followed.
44, Firms having R&D activities.
45,
46.
4.
48. Institutional Framework Of Local Economic Development In Turkey .
4, Insintonl Framework OfLocal Eeonoas Development By Seton Tn
Turkey.
‘50. Organisational Framework of Local Economic Development in Denizli.
1. Industrialists and Businessmen Associations in Denizli
‘52. Geographical Distribution of MUSIAD members 1995
53, Relations of Firms with Local Instittions..
54, How Firms Benefit From the Local Institutions,
55, Identification of Denizli as a New Growth Node in Turkey.
56. Evaluation of the Institutional Atmosphere of Denizli
181
181
182
182
xii
spo. yDsesuKDORETI KORTELIST OF FIGURES
FIGURE
‘The Powerful Family Groups Of The Region: Partnership Solidarity And
‘Trust Depending On The Family Relations (1) .
The Powerful Family Groups Of The Region: Partersip Solidarity And
‘Trust Depending On The Family Relations (2)
Family Firm Aet As A Leader Ia The New Initaons For The Region
Group of Firms fom Baad: Partnership And Solidarity Defined By
‘Hemgeri Relations..
Firm Exeacted fom the Group of Fins fom Babada: The Entrepreneur as
One Of The Social Leaders Of The Region.
‘Second Generation Successful Entrepreneur.
163
163
164
“Babadag Senedi 184
Strike in Babadag 184
(Quality standard application in Babadag. sol 84
“Professional Local Mediator” 192
‘An Example to Modem Firms.
‘An example for Progressive Traditional Finns. 195
‘An example for Small Firms.. 1196
196
“Firm Doctor” 197
‘New Collaboration for Exporting ....1n:nennnne sneer 98
‘An ORTKA Application. 206
‘Not all Firms at Same Distance to Chambers.. 2M
Positive Effects of Solidarity
Negative Effects of Solidarity
Offended family members due to business relations.
‘Typical Short Story of a Denizli Entrepreneur.
‘An example for Incongruous Firms .
225
228
226
xiiiINTRODUCTION
1 Aim and Scope
‘The main aim of the thesis is to understand the influence of institutional factors on the
economic development prospects of regions in an era of globalisation, The basic statement
{s that capitalist development is entering a phase in which regions becoming the primary
unit of spatial organization and production and the issues of regional regulation have a
crucial role to maintain economic development in the new global competition
World capitalism is moving into a phase of development marked by an intensified
regionalisation of production overisid by a global division of labour. In this process,
significant reallocation of economic coordination and steering functions is occurring away
from the sovereign state, up to the international and down to the regional levels. ‘The
combined process of global integration and regional concentration of economic activity
raise important questions about appropriate forms of regulation in the new world order.
‘The late 1970s and early 1980s period witnessed a growing appreciation of the fact that
the nationally-oriented Fordist-Keynesian political economic compromise, variations of
‘which lad become hegemonic in most ‘core’ Wester countries after the Second World
War, was reaching exhaustion (Lipietz 1987). As part and parcel of this structural crisis,
‘many of the institutions of post-war capitalism-fordist mass production, were being
fiercely challenged (Hirsch 1983). The erosion of post-world war institutions has
accelerated and addressed a key question: what other economic institutions should replace
the configuration of post-war regulatory regimes and Keynesian strategies? (Lange and
Kulessa 1997),‘The current era is marked by a profound degree of uncertainty in prevailing economic and
political relations. At the root of this uncertainty are three interrelated processes; the
emergence of a new information technology paradigm that is dramatically altering
economic calculus of production and distribution; the phenomenon of globalisation which
is increasing the linkages and interdependence between the economies of Europe, North
‘America and East Asia; and the gradual decline of Fordist methods of standardised mass
‘production and distribution with profound implications for the occupational structures and
pattems of employment throughout these economies. The resulting dislocation raises
fundamental questions about the future roles and relationships of different levels of
‘govemance ~at the global, national and regional levels of the economy and society.
‘These developments are focusing attention on the changing role of the regions. A number
of factors contribute tothe increasing salience of regions in the emerging global economy.
Complex systems of technology production processes and industrial organisation, and
their supporting infrastructures of social and politcal institutions exhibit distinctive spatial
characteristics. Production relations tend to aggregate over time among networks of firms
following the pattem of input-output relations, or traded interdependencies, that form the
basis of information exchange in the local economy.
The scope of this thesis is;
-to review some of the important changes which have occurred in twentieth century
affecting the environment in which regional economies operate; the implications of
transformations in the global production and regulation mechanisms and geographical
reorganization of capitalism,
-to examine changing general theoretical ideas about regional economic development
processes and the recent debate about institutional approsch to economic geography,
-to examine the role of institutional structures in the development of dynamic local
production systems through some of the success stories of industrial and regional
development in 1980s and 1990s,
-to develop a framework for analysing the institutional arrangement of an agglomeration,
-to search for a new model of regional economic development through the emphasis of an
institutional atmosphere in the creation and maintenance of an agglomeration through an
empirical study from Turkey, Denizli,-to speculate on region-specific policy axioms on local economic development
12 Theoretical Framework
Since the mid-1990s, we have seen the flourishing of a new economic geography with
“song instuonalis? accounts (Peck 2000), Deriving mach of their conceptual
inspiration ffom the instittionalist paradigm, and ther empirical evidence from many of
the industrial dstets that had originally featured in debates on post-Fordism, these
perspectives share two common premises (Lange and Kulessa 1997).
‘The first offers, the local and the global are intricately intertwined in a process of
institutionalisation where “local initiatives structure responses to processes of
slobatisation and themselves become part of the process....of globalisation” (Amin and
‘Thrift 1994, p.257). Moreover, globalisation does not represent the end of territorial
distinctions and distinctiveness, but an added set of influences on local economic
identities and development capabilities.
‘The second contends that production is territorially embedded in social and cultural
relations and dependent upon processes of cognition (different forms of rationality);
culture (different forms of shared understanding or collective consciousness); social
structure (networks of interpersonal relationships) and politics (the way in which
economic institutions are shaped by the state class forces). Local economic development
reflect how locally relevant actors can shape the course of economic evolution by
‘mobilising ‘flexible institutional strategies’ through an appropriate blend of organisational
support structures and embedded ‘social capital” (Putnam 1993), The latter refers to
institutional infrastructures such as knowledge-creating networks of trust and reciprocal
ties, which complement investments in human and physical infrastructures and which
‘sometimes draw on traditional, familial, and community-based resources.
‘The lineage of these concems can be traced as far back as the late 1970s and some key
research in various research programmes which took the role of economic and political
institutions seriously in their explanation such as; evolutionary economics (Nelson and
Winter 1982) on technological innovation, neo-Schumpeterian theory (Freeman et.al
1982) on economic long waves, industrial sociology (Sabel 1982) on labour process,economic geography (Bluestone and Harrison 1982) on regional decline, French
regulation theory (Aglietta 1979) on economic crisis, European state theory (Hirsch 1983)
con political legitimacy and early work on industrial districts on local economic
development.
Insttutionalist outlook, which is behind all these research programmes, seeks to redefine
‘What is considered to be ‘the economic’ through the progression of an emerging socio-
economics (Amin and Thrift, 1995). Viewed from this lens, markets are socially
constructed; economies are diachronic, evolutionary, and volatile; and economic
behaviour is itself self-embedded in and shaped through a whole range of institutional
habits, seemingly nonrational cultural motes, knowledge-creating networks, and place-
based ties of proximity (Lange and Kulessa 1997). All of which implies a recourse to
‘contingency and contextuality in theory formation and a key role for geography in the
configuration of any institutionalist mode of inquiry, not least through the growing
appreciation of ‘evidence-based research’ (Amin and Thrift 2000; Bames 1999; Martin
2000).
Following these recent debates in the literature, the thesis focuses on a set of theoretical
tools involving interdependent dimensions of regional economic development,
Regulationist theory provides us with a view of economic history as a chain of