The Global Electric Vehicle Value Chain: What Role for Turkey and Mexico?

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List of Tables and Figures

Table 1: Top auto exporting companies in Turkey and Mexico, with company ownership. [Page

44].

Table 2: Advantages and challenges for global EV value chain integration in Turkey and Mexico.

[Page 71].

Figure 1: The types of governance in GVCs. [Page 13].

Figure 2: Basic structure of the automotive value chain. [Page 18].

Figure 3: Escapees and non-escapees of the MIT. [Page 24].

Figure 4: Stages of catching-up process. [Page 25].

Figure 5: Domestic and foreign value-added in Mexico’s total exports. [Page 42].

Figure 6: Turkey’s trade in manufactured goods by technology level. [Page 46].

Figure 7: Global CO2 emissions by economic sector. [Page 49].

Figure 8: Global annual sales of plug-in electric passenger cars in top markets. [Page 50].

Figure 9: The electric vehicle value chain. [Page 51].

Figure 10: Historical lithium prices per metric ton. [Page 52].

Figure 11: Turkey’s trade in EVs and HEVs. [Page 55].

Figure 12: Turkey’s trade in lithium-ion batteries. [Page 56].

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Acknowledgements

I would like to thank first and foremost my parents, Seyfi and Nükte Durhan, for their unyielding emotional and material support throughout the process of writing this thesis. At no point in time

were they unenthusiastic about the nature of my research, and I remain greatly indebted to staunch belief in my ability to produce an original thesis.

I would also like to thank my supervisor, Professor Jonathan Zeitlin, for his invaluable insights and sharp commentary on my thesis. The process of coming up with a topic or arguments would

have been much messier without him.

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Abstract

The automotive global value chain (GVC) is one of most largest and most interconnected manufacturing industries in the world. At the same time, it is undergoing a major technological upheaval through the development and proliferation of electric vehicles (EVs). This thesis aims to explore the contrasting development trajectories of Turkey and Mexico’s respective automotive industries in the context of their situation in the middle-income trap (MIT). By reaching an understanding of the policies and decisions these countries took with their automotive industries, it will then seek to examine the existing policy framework, opportunities, and challenges regarding the emergent global EV value chain. In doing this, it will utilize a combination of interviews and primary sources to achieve qualitative comparative analysis (QCA). Both countries face significant hurdles for the development of autonomous EV industries with significant export capabilities. For Turkey, the main challenges will be identified as: (1) the continuing prominence (if not outright dominance) of the coalition between major auto producers and the state, which are reluctant to develop innovative business models within Turkey, (2) fragile political relations with the EU, which is causing decades of hard-earned GVC-integration between the two markets to fracture; (3) the lack of national lithium reserves, which is the raw material foundation for EVs and batteries. For Mexico, the main challenges are likely to be: (1) lackluster industrial policy that fails to effectively incentivize the production of EVs with high domestic value-added; (2) the problem of MNCs and high foreign-value added to autos/EVs saturating the domestic market; (3) the limited nature of the North American TIR as the provider of a regional market and regulatory framework. Understanding the political economy implications of these findings is crucial for the achievement of decarbonization within the global automotive industry.

Keywords: Political economy; industrial policy; decarbonization; automotive industry; global

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The Global Electric Vehicle Value Chain: What role for

Turkey and Mexico?

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Section 1: Introduction

Globalization, we often hear, is the story of our lives. The concept penetrates so many aspects of our daily lives that it would be impossible for one to decouple themselves from the phenomenon. As a force that keeps on expanding and taking new forms and shapes as history progresses, its presence cannot be denied. Commonly we hear that ‘globalizations makes winners and losers’. There is certainly some truth to this: markets provide opportunities for some but do not improve the lives of those unable to compete. The global automotive industry is one manifestation of globalization that has certainly produced a large amount of winners. Between 1999 and 2019 total motor vehicle production rose from 56 million units to 91 million units (OICA, 2019). In 2018, total car exports alone amounted to $751 billion (Atlas, 2020). Global automotive producers preside over a massive global industry, linked to thousands of smaller companies and side-industries, employing hundreds of thousands of people. As developing countries have started to catch up, many of them – including China, India, Thailand, the Czech Republic, Turkey and Mexico – have been trying to latch themselves onto the global automotive industry. Needless to say, some have made greater gains than others. Simultaneously, a technological revolution within the automotive industry is happening. With the industry veering towards a slow but unmistakable transition to electric vehicles (EVs) under the pressure of climate change and decarbonization, developed and developing countries alike will have to buckle up for a new set of challenges with deep political and economic implications. As the aforementioned mantra of globalization suggests, some might fare better than others.

The locus of this thesis is how two developing countries – Turkey and Mexico – have positioned themselves in the global automotive industry as exporters, and how the decisions and policies they made up to now will affect the upcoming EV transition. The automotive industry has been an important part of the story of these countries’ relative growth, and impacts the lives of many of its citizens from all social classes. In 2018, the industry comprised a sizable portion of export earnings in each country (about 27% for Mexico, and 18% for Turkey1). However, the prospects for these countries upward movement of the development ladder (vis-à-vis the automotive industry) has

1_{OEC Profiles: Turkey: (}_{https://oec.world/en/profile/country/tur/}_{) and Mexico:}

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halted. This thesis will attempt to explain why this has happened, and will make arguments about why it might happen again.

1. 1 Research question

By approaching the issue from the perspective of trade, the thesis will more explicitly focus on how EVs can be produced and exported in a way that increases the wealth of a country, and how the processes of trade interact with the dynamics of the political regime(s) in power. Consequently, the research question and sub-questions are as follows:

Research question: What are the prospects for decarbonization in the automotive industry in

Turkey and Mexico via EVs?

Sub-question 1: How does the structure and governance of the traditional automotive

industry affect these countries’ transition to EV production?

Sub question 2: What role does industrial policy play in development of these countries’

EV industries?

Sub-question 3: How do the prospects of transition to EV production in Turkey compare

to those of Mexico?

1.2 Structure of the thesis

This thesis will have the following structure. Firstly, there will be literature review to lay out the relevant theoretical framework surrounding the thesis, namely discussing globalization and the state, developmental states and the role of industrial policy, transnational integration regimes, and global value chains. This section will end with a brief outline of the characteristics of the global automotive value chain. Afterwards, data collection and the methodological background will be

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discussed. After, there will be a section situating Turkey and Mexico’s automotive industries in the middle-income trap through a dual historical overview. This section will conclude by comparing industrial policies in both countries, to see both similarities and differences. The following section will be the main analysis of the thesis, where most if the data gathered was used to form an original contribution. This section will begin by outlining the key features of the upcoming global EV value chain. It will then analyze the prospects for EV production and export in both countries, respectively. Finally, it will summarize and compare findings. The last section of the thesis will attempt to provide a logical conclusion for the arguments and findings presented.

Section 2: Literature Review

This section will first address the key theoretical discussions and contentions exploring the interaction between the state and globalization. It will attempt to combine the literature in a way and arrive at a theoretical appreciation of the importance of both ‘globalization’ and national states as ultimately adaptive entities, moving away from a more simplistic ‘strong globalization, weak state’ or ‘weak globalization, strong state’ paradigm. Subsequently, it will discuss the importance of developmental states and industrial policy, transnational integration regimes (TIRs), and global value chains (GVCs), in that order. Finally, it will briefly outline the basic characteristics of the automotive industry. All of these theoretical foundations will established here, and will be accordingly applied to analysis of the automotive industry.

2.1 Globalization & the State

The two or three decades leading up to the Great Recession of 2008 have begat a distinct pro-market narrative proclaiming the triumph of a fully globalized, liberalized world order where the exchanges of goods, services, and capital have managed to ‘roll back’, or even supersede ‘the national’, causing ‘globalization’ to enter the dominant political and economic lexicon. The disappearance, or at least diminishment, of the nation-state as an institutional structure in the

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modern sense was embraced across the board, by economists, critical theorists, and political scientists alike (e.g. Abbott & Snidal, 2009; Barrow, 1993; Castells, 1997; Friedman, 2005; Strange, 1996). The decade since the financial crisis has radically reversed the opinions of academics and policy-makers alike. Indeed, both the contention that the post-Bretton Woods system has been gradually rescinding the role of the state in the global economy since the 1970s, and the very foundation that the globalized order could coexist within a ‘liberal’ setting, with minimalist, ‘rolled back’ states have become increasingly dented. Nevertheless, a number of globalization theorists have been hinting at the indelibility of state institutions, national economic programs, and their consequences for global industrial production since the 1990s, during the high-tide of the free market globalization discourse (e.g. Atkinson, 1999; Evans, 1995; Wolf, 2001; Wood, 2003). At its core, globalization is concerned with “real structural changes in the scale of modern social organization” (Held & McGrew, 2003, p. 6) that, in their relationship with the state, go above and beyond simplistic dichotomies into ‘left-right’ or ‘liberal-authoritarian’, encompassing a truly variegated combination of political, economic, financial, social and cultural dimensions.

According to Barrow (2005), Marxist debates on state theory began to wane in the late 1980s, as a result of the transmutation of classical Marxist theory into more post-structuralist paradigms, wherein analyses of more micro ‘technologies of power’ such as the family, culture and entertainment displaced older theorizations of state power as something strictly embedded within the borders of a nation. This coincided with ‘globalization’ emerging as a key buzzword and phenomenon in the 1990s, causing many scholars to push state theory aside and even eulogize the nation-state as an institutional framework (Barrow, 2005). The immediate postwar orthodoxy that had lasted until the 1980s, which posited the nation-state could foster ‘national’ currencies, capital, goods and services, or people and isolate them from the ‘international’, it seemed, was based on erroneous judgements. Much of the theoretical and ideological impetus for this form of thinking derived from John Williamson’s nebulous conception of a ‘Washington Consensus’, a loose set of global macroeconomic policies such as trade liberalization, the securing of property rights, and floating exchange rates promoted by the IMF, the World Bank, and the US Treasury as a guiding force for global economic development (Williamson, 1993). The arguments for free-market oriented global development, and the macroeconomic policies that flowed from it set in motion a

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radical transformation of the global economy since the 1990s. To its proponents, globalization promised bountiful, if uneven, economic returns and wealth creation, as the pursuit of economic liberalization would boost competitiveness, draw in further investments, create jobs, and infuse global economies in a Ricardian exchange of their ‘comparative advantages’, whereby a country that specializes in the production of one good trades with another country specializing in another good, usually by using the proceeds gained the sales of locally produced good (e.g. Bhagwati, 2004; Bhagwati & Panagariya, 2013). Globalized free markets unencumbered by the political influences and regulatory mechanisms of national governments has consistently been one of the hallmarks of the ‘Washington Consensus’ cadre of theorists. For instance, the Adam Smith Institute writes that their worldview is not only markets”, property rights”, and “pro-growth”, but also “Globalist in outlook” (Bowman, 2016). Another leading global free trade think-tank, the Cato Institute, professes a commitment to “principles of individual liberty, limited government, free markets, and peace” (Cato, 2020). The arguments and ideas forwarded by these globalization theorists have played no small part in the creation and furtherance of international trade agreements (such as NAFTA) and international free trade bodies (such as the WTO). Such organizations came to greatly influence the growth of global industries, such as the automotive industry. But what these arguments lack in many instances is a deeper appreciation of how globalization also ushers in new political challenges for countries.

Peck (2001) has written early on that such “globalization rhetoric [has] a certain ethereal quality, discursively placing issues like deficit reduction and trade policy (apparently) beyond the reach of day-to-day policy debate and political struggle” (p. 448). A critical line of discussion has emerged from the criticism of globalization. Concerning historians of intellectual history, sociologists and other critical theorists alike, it has revolved around the contestation of the very narrative that delineates globalization as a phenomenon occurring ‘outside’ of states. The assertion is that it is only because states have become deregulated and downsized since the 1980s that we can have so much globalization, culturally, politically, and most importantly, economically. The discretization of states’ influence on capital accumulation, market formation, and on the overseas activities of firms, as well shall see, has been disproven by both GVC and developmental state theorists. As Slobodian (2018) explains, states were never far removed from the globalization we recognize today through institutions such as the WTO and the IMF. In fact, many ‘neoliberal’ thinkers, the

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philosophical godfathers of today’s pro-globalization generation, critically wanted “encasement, not liberation” as a universalistic paradigm for organizing the global economy (Slobodian, 2018, p. 4). The narrative of needing ‘minimalist’ or ‘marginal’ states was never stated as a fact by Friedrich Hayek, one of the foremost ‘neoliberal’ and globalist intellectuals (Ibid, pp. 55-91). Hayek instead retained the metaphor of the global economy as a ‘school of fish’, an impossibly interconnected series of networks that had to be organized according to the global ‘rules of the game’, established by some omniscient transnational authority (Ibid). This metaphor aptly fits the design of the global automotive industry in the 21st century.

Note how this differs from the more modern narrative of global markets needing to exist in an institutional vacuum, with state intervention stripped to a minimum. Williamson, in a later paper concurred that the caricaturization of the ‘Washington Consensus’ as a one-size-fits-all model is highly problematic (Williamson, 2009). He attributes state involvement in some parts of the world (mainly East Asia) have successfully worked hand in hand with more general globalization policies - such as fiscal prudence and competitive exchange rates - to produce sensational growth (Ibid, 2009, p. 12). Hence the argument that globalization has ‘rescaled’ the national state is valid, albeit the nature of this rescaling does not always necessarily refer to a mere ‘rolling back’. The earlier notion of national states as rigid containing blocks bound by a fixed geography has become both economically and politically defunct as states increasingly reconfigure their regulatory frameworks, apparatus and governance systems in accordance with transnational phenomena, and as such, the aggregation of state capacities no longer necessarily happens within the territorial bounds of a government (Peck, 2001, p. 450; Brenner, 1999, p. 53). Although the immediate logic of market-oriented globalization calls for the ‘rolling back’ of state intervention from as many spheres of the market as possible, various authors have noted how the simultaneous demand for an expanded provision of property rights and commodification entail the callback of state power rather than its dismissal (McCarthy & Prudham, 2004, p. 276; Peck, 2001; Pistor, 2019).

The ‘Washington Consensus’ perspective that free-market policies have essentially neutered or minimized the state’s involvement in the domestic economy, especially with the downscaling of national welfare and public investment programs, then, holds some truth (e.g. Peck, 2001, p. 449; Cerny, 1995, p. 618). The notion of a state ‘roll-back’ is certainly plausible in this case, with

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globalization pushing national economies into a more competitive environment, hence putting similar competitive pressures of market-driven efficiency on the welfare state. Once again, ‘roll-back’ corresponds to the destruction and dismantlement of older state structures, institutions and regulations, a process that corresponds to the discretization of the Keynesian social-democratic welfare model that was prevalent in advanced economies until the 1970s (Peck & Thickell, 2002, p. 384).

However, a better way of characterizing the relationship between the state and post-1990s neoliberal globalization might be by arguing that it precipitates the reorientation of states in an attempt to “streamline all sectoral capacities” (Springer, 2010, p. 1032, quoting Mudge, 2008). That is to say, states choose to actively engage in neoliberal globalization as a general pathway to remain economically competitive, especially on a global scale (Springer, 2010, p. 1032). While this embodies ‘roll back’ along some axes of state capacity - ostensibly in the form of monetary cuts made to fiscal and administrative systems, what during crises would be called austerity - it equally suggests a ‘roll out’ of other axes - for instance the reconfiguration of management systems to ramp up the state’s purview in surveillance, urban/municipal management, and even social affairs (Cooper, 2006; Peck, 2001; Springer, 2010).

However, as Genschel (2004) argues, it is more productive to view ‘roll-out’ globalization as one of three major theoretical paradigms that have been attempting to explain the impact of neoliberal globalization since its onset in the 1990s. For one, “political reactions to globalization are not entirely preprogrammed by globalization itself but also depend on domestic structures” (Genschel, 2004, p. 632). Further, globalization presents itself as more of a three-way menu that national governments can choose to interact with: one course pertains to the ‘surrender’ of national welfare state capacities to the demands of intense competition emanating at the level of the global economy; the other maintains that increased global economic interdependence has in fact not undermined national autonomy, and cross-border differences still remain strong; and the final one embraces globalization as a motivator and facilitator of dynamic efficiency on a national scale, not as an external force imposing competitive burdens (Genschel, 2004). This three-way dichotomy of ‘surrender’, ‘disregard for’ and ‘encouragement’ (Ibid) could well be likened to Hirschman’s (1970) ‘exit, voice, loyalty’ model, whereby people in states, institutions or firms, when faced with

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organizational collapse, can either leave their existent framework, apply dissent and thus attempt to generate solutions, or maintain the status quo. However, as discussed, the interplay between globalization and states branches out into multitudinous possibilities even after national governments make firm choices on how they choose to embed themselves into the global economy. The automotive industry offers an excellent case study on this basis.

2.2 Developmental states & industrial policy

The ‘developmental state’ was first termed Chalmers Johnson (1982) in an attempt to describe the Japanese postwar growth miracle. The Japanese success lay in the deliberate targeting of economic development goals by key government institutions, which then were filtered into concrete policies and economic actualities through strong linkages with major business conglomerates. Alice Amsden (1992; 2001) later postulated a similar theory of developmental government structures for the Asian Tiger economies (Taiwan, South Korea, Hong Kong and Singapore), which achieved what was termed late industrialization. Over a period of several decades, all these economies achieved rapid economic growth rates, owing to a large extent on their export-oriented industries. States deliberately subsidized in the competitiveness of key industries, bolstering their capital levels and productivity. For Evans (1995), the attainment of ‘embedded autonomy’ is crucial for the development of strong, economically vibrant industries. ‘Embedded autonomy’ refers to the idea that government institutions that work toward the development of a particular industry must simultaneously insulate the industry from external pressures whilst maintaining a degree of expertise and know-how in their affiliated businesses. As such, both a degree of national industrial ‘autonomy’ and ‘embeddedness’ in the logistical, technical, and political deliberations of the targeted industry must be achieved. With multinational corporations (MNCs) increasingly internationalizing both their export markets and production lines despite keeping their headquarters local, then, ‘development’ comes to encompass the “relation between local productive capacity and a changing global array of sectors” (Evans, 1995, p. 8). The ultimate goal of the developmental state must be to insulate states from excessive competition during their early phases, steering them into slowly but gradually towards financial and logistical independence.

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A number of authors have noted, however, that Evans’ (1995) mere suggestion of ‘embedded autonomy’ as a developmental paradigm lacks concreteness (e.g. Block & Negoita, 2016; Ó Riain, 2004). Ó Riain (2004) differentiates between ‘developmental bureaucratic states’ (DBS) and ‘developmental network states’ (DNS). Instead of providing rigorous, top-down development schemes such as direct investment and subsidies, (the DBS model) DNS models provide networks of technical knowledge and enter into horizontal relationships with emergent firms (Ó Riain, 2004). According to Block & Negoita (2016), when attempting to develop industries for novel technological products (anything from electric vehicles to smartphone applications) it is important that appropriate government agencies step in, as in particular many small firms and startups have low thresholds for risk and might lack the tools or resources for generating collaborative relationships with other firms, suppliers or organizations (pp. 63-4). Government agencies can become more ‘embedded’ by for instance supplying crucial funds for firms’ projects, or by securing their intellectual property rights against other firms who may have a larger pool of funds and networks (Ibid, p. 65). The DNS’ objective must then serve to prevent a “network failure” (Schrank & Whitford, 2011) within newly emerging industries. Moreover, ‘embeddedness’ must transpire into a degree of entrepreneurialism on the part of the state itself. As Mazzucato (2013) argues, major technological breakthroughs in the US electronics and pharmaceuticals industry (e.g. the iPhone, the Internet, GPS) have come from high-risk investments monitored and financed by the state. Various government agencies subsequently dispersed the technological advancements throughout the private sector, instantly cutting out most risk and R&D related costs that would have borne down private actors had they initiated these investments without state assistance (Mazzucato, 2013). Regarding ‘autonomy’, government agencies must be both organizationally and cognitively endowed in order to strike the right balance. This means, firstly, that they must be able to at once discipline private actors in the industry through fund withdrawal, and be able to insulate themselves from large lobbying forces from politicians and donors which would jeopardize their commitment to development (Block & Negoita, 2016, p. 59). Equally, and to reiterate Mazzucato (2013), government agencies must possess some capacity to think independently about new innovations (Block & Negoita, 2016, pp. 59-60).

Having defined the role of a successful developmental state, this thesis will also consider ‘industrial policy’ from a more nuanced perspective. For many, industrial policy still resonates as

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a set of very narrowly-defined economic policies aimed at boosting industrial production and helping national value-added from manufactured goods rise. Hence, the more mainstream economic view only perceives policies such as exchange rate regulation, import substitution, export orientation, tariffs and quotas to be in the purview of industrial policy. The problem with this view is not only that it narrows the potential capabilities of the state, but equally that it undermines the conceptualization of the macroeconomy as the aggregation of an intricately connected series of actors and processes. Aiginger & Rodrik (2020) set out a compelling case for the renewal and enlargement of the scope of industrial policy. Indeed, they argue that in recent years industrial policy has, and will continue to be, subjected to a series of major transformations. (1) industrial policy refers to more than manufacturing, and involves broader structural and developmental reform; (2) it is no longer merely about top-down decision-making, involving both public and private actors, and horizontal decision-making mechanisms; (3) it involves a wide spectrum of policy directives including competition law and regional growth policies; and (4) it must evolve to combat the growing threat of the bias towards labor-saving technologies and the challenge of transitioning to greener growth models (Aiginger & Rodrik, 2020).

A renewed vision for industrial policy is imperative for sustainable growth in industrial economies (Aiginger, 2014). It is argued that at the current stage of global economic development, baseline policies such as hampering imports to cutting wages are counterproductive; what is instead needed is a policy regime that achieves ‘beyond-GDP’ goals that emphasize advanced skills, innovation, supporting institutions, ecological aims, and social policy (Aiginger 2012; 2014). The ideational function of industrial policy, therefore, must be in many cases to scrape off the rust of ‘lock-in’ situations, where old industries conservatively stick to using old technology and thus make poor investments for the future (Aghion et al., 2011). This implies a simultaneous adherence to market competition and picturing the economy not just as it is, but where it should be 20-30 years from the present (Aiginger, Bärenthaler-Sieber, Vogel, 2013). In particular the need for public agencies to direct their energies toward supporting institutions and ecological conditions is a highly novel consideration, and will become increasingly relevant as the pressures of global markets and climate change mount on polities worldwide. Rodrik (2014) puts forward ‘green industrial policy’ as a genuine developmental paradigm for states. Applying the aforementioned industrial policy paradigms to green technologies and carbon-heavy heavy industries helps remove the deadwood

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of old, entrenched subsidies to increasingly undesirable industries such as fossil fuel production (Rodrik, 2014). It also allows governments to take on a more entrepreneurial role (Mazzucato, 2013) in experimental policy processes such as R&D, loans for carbon reduction, government procurement of environmentally-friendly products that lie at the interface of decarbonization and investment (Rodrik, 2014; Aiginger, 2013). Both the carbon abatement and diffusion of green technologies that emanate from green industrial policy produce far wider social benefits than private ones, and are thus better-tailored for government involvement since the state can easily internalize costs (Rodrik, 2014). In this regard, green industrial policy is an essential tool developing countries must come to consider for two reasons: firstly, to break free from the ‘lock-in’ of old, entrenched socio-technocratic regimes (which are usually lagging behind those of advanced countries), and secondly, to develop domestic capabilities for decarbonization (Unruh, 2002; Kemp & Never, 2017).

2.3 Transnational Integration Regimes

Trade in goods and services is part and parcel of economic globalization. One of the deepest ways in which globalization has been achieved in the past 20-25 years has been through transnational integration regimes (TIR). Broadly speaking, these are “institutionalized arrangements involving public and private actors from two or more countries in creating and governing the rules of economic interactions in specific regions” (Bruszt & McDermott, 2012, p. 743). These regimes create a shared valve for economic integration within the domain of a regional cluster of countries, all which vie to reduce limitations on the flows of goods, services, labor and capital across their borders (Bruszt et al., 2020; Bruszt & McDermott, 2014). The most noteworthy TIRs in the 21st century have been the North American Free Trade Agreement (NAFTA) and the European Union (EU), or more broadly, the EU Customs Union, which, in addition to the current 27 member states, includes Turkey, the UK, as well as certain smaller regions in Europe. Bruszt & McDermott (2009) have suggested that TIRs go above and beyond bare-bones trade liberalization and lead to significant changes in both regulatory standards and domestic economic capacities in peripheral countries that embed themselves into the rules of the regime. Hence, TIRs can be interpreted as developmental regimes just as much as they foster the liberalization of trade and capital flows

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(Bruszt & McDermott, 2009), in the sense that they can be conducive to achieving Evans-ian (1995) ‘embedded autonomy’.

The significance of TIR arrangements for emerging market economies attempting to grow and develop through trade cannot be overstated. Beyond bringing competitive pressure, by allowing for a dual convergent pattern of trade liberalization and alignment along regulatory standards, TIRs present both ample opportunities and disequilibrating risks for firms in both core and peripheral countries. Trade-induced development needs to be backed up by government interventions to correct for some of the increasing complexities of the economy, through the provision of sufficient ‘policy space’ for public institutions (Kumar & Gallagher, 2007). Optimally, TIRs help achieve this ‘policy space’ through the gradual deepening of trade and regulatory regimes. If the alignment of market and regulatory regimes is done with finesse, it could allow for a slow but steady inclusion of peripheral, less-developed economies into the purview of a beneficial free-trade matrix construed by the core countries; if domestic institutions in peripheral economies are too underdeveloped, the integration process could conclusively wipe out entire industries and subordinate emerging markets into a state of permanent dependence (Gereffi, 1995; Bruszt & Langbein, 2017). For this reason, TIRs are not arrangements with linear outcomes, but rather provide and enforce a variety of development trajectories to countries which choose to insert themselves into them, to varying degrees (Bruszt & McDermott, 2012).

2.4 Global Value Chains

The previously discussed theories of developmental states, industrial policy, and TIRs can be placed within the wider theoretical framework of global value chains (GVCs). A GVC describes the series of interconnected economic activities that revolve around the production of a particular good, coordinated through various geographies. It has become a critical mode of analysis in international political economy, economic geography, development studies, and international affairs in general. Indeed, ‘globalization’ in the economic sense of the word is quite inseparable from the emergence of GVCs. A value chain takes place between main firms and suppliers, and reflects the fragmentation of the production process into functional components in accord with each firm’s or supplier’s core competences, with the ultimate aim of minimizing costs and

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exploiting division of labor (Porter, 1985). In essence it allows firms to externalize potentialities for competitive advantage and product differentiation, without making exhaustive adjustments to the internal organizational structure. Value chains differ from supply chains in the sense that they refer to the ‘value’ generated in between each phase of production. Supply chains, on the other hand, are engaged with the optimization of the positioning and timing of resources, such that they reach the right place at the right time, in sufficient quantities - a process requires the interaction and alignment of suppliers, producers, distributors, and consumers alike (Croxton et al., 2011).

Gereffi et al. (2005) has posited that lead firms play a powerful role in both the design and governance of their respective GVC industries. These are firms who usually produce the final completed good. Although they are not the only firms to have direct access to the end consumer market, they tend to play the most significant role in how and where a product is designed, produced, assembled, and then marketed (Gereffi, 1999; Gereffi et al., 2005; Altenburg, 2006).

Figure 1: The types of governance in GVCs. Source: Gereffi et. al, 2005.

Two vital elements of GVC analysis are value capture and upgrading. Simply put, “[v]alue capture is critically determined by who leads GVCs” (Lee et al., 2011, p. 2). As GVCs are increasingly driven by the demand side, the most comprehensive buyers that are at the end of the chain (the lead firms) can exert more power and control over the rest of the producers down the line (Lee et

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al., 2011, p. 3). While lead firms want to extract as much value from their suppliers as possible, suppliers tend to be under intense competition as their sales to the lead firm serves as a byway to their penetration of global markets (Yeung & Coe, 2015, p. 38). Upgrading simply refers to a firm within the GVC moving from a lower- to a higher-value segment of the production process. This can be achieved through increased demands for quality standards, R&D investments, moving into more sophisticated production lines, to name a few (Humphrey & Schmitz, 2002; Lee et al., 2011). Both smaller firms and developing countries are in a constant desire to upgrade, to reap the benefits of being engaged with key players in the global economy. According to UNIDO (2002), “[f]or such enterprises, or local clusters of enterprises, the task is to insert themselves into the wider networks... [t]his takes discipline, to attain the higher world standards” (p.105). As firms upgrade, they are able to capture a larger chunk of the value of the end product.

Nonetheless, GVCs are also dynamic, and the nature and time horizon of the links between firms matter as much as the broader governance structure, typified in figure 1 by Gereffi et al. (2005). Dependent GVC linkages tend to be based on short-term lead firm-supplier relationships, wherein FDI contributes little to local upgrading efforts, whereas developmental linkages tend to be more long-term, wherein for example foreign subsidiaries develop extensive networks with local suppliers without creating a complete market hierarchy, thus enabling local firms to upgrade over time (Turok, 1993; Coe & Yeung, 2015; Pavlinek, 2018). That said, as Yeung & Coe (2015) show, linkages can also involve non-firm actors such as states, involving a complex variety of motivations including proprietary rights and greater socio-political power. Thus the precise developmental nature of a GVC should not be confined to time horizons of the exercise of lead firm power. Gereffi et al. (2005) has equally noted that GVCs are subject to variegated transformations and shifting relations between lead firms, intermediaries, and suppliers. Significantly, Gereffi (2014) has added that GVCs are in constant flux, due to the need to adapt to business cycles, competitive pressures, and economic crises. This suggests that even long-standing governance structures in globe-spanning industries are subject to change.

Some, like Coe & Young (2019) have pointed out the need to move conceptually further than the analytical toolkit provided by Gereffi et al. (2005). Within GVCs (alternatively, global production

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networks. That is, the dynamics of GVCs can change not merely through the relationship between lead firms, intermediaries and suppliers, but also on a regional and micro level, for instance through national policies that promote or penalize a particular firm or industry (Coe & Yeung, 2019). As GVCs can span several countries, even continents, they inevitably intersect with varying socio-political regimes and trade networks. This means that, in some cases, states can exercise considerable influence on GVC governance. In a globalized world, states no longer merely outline the legal framework in which companies have to operate: they are active regulators, producers and buyers within GVCs, and multiply the complexity of their governance by both acting as additional buyers/suppliers and providing the institutional skeleton in which firms operate (Gereffi & Lee, 2016; Horner, 2017; Brun & Lee, 2016). In other words, states are ‘catalytic’: they can not only facilitate the internationalization of market activities, but can also help create and consolidate national and regional trade and production networks (Weiss, 1997, p. 17). For instance, developmental states functions, such as public procurement policies or network facilitation, can easily attach themselves onto GVCs and production networks. State-led export promotion policies are also part and parcel of trade, and thus inseparable from the dynamics of GVCs. Consequently, it is crucial that the role of the state in GVCs is not played down.

GVCs are decidedly highly embedded in politics, not just in the sense of ‘who gets what’, but also in the variety of strategies and coalitions actors (whether these are market-regulating institutions or just businesses) deploy to reap further value from the process of trade. As new problems magnify in our ‘post-Washington Consensus’ world, an analysis of global supply chains from a GVC analysis perspective must necessarily take into account shifting value-capture strategies by firms, the shifting bargaining power from lead firms to suppliers, and the rise of new centers of geographic and economic activity, especially in emerging countries such as Turkey, China, India, Mexico, Malaysia and Brazil (Gereffi, 2014; Raj-Reichert, 2018; Coe & Young, 2019). As Timmer et al. (2014) explains, while international trade and GVC specialization can be welfare-improving, as they expand avenues for further opportunities, it does not necessarily benefit all workers and owners of capital (p. 116). One major reason for this has been the outsourcing of manufacturing activities to emerging economies. Declining value-added in low-skill sectors in emerging markets has been one of central developmental challenges to the further growth and specialization of GVCs, and that in itself has produced an immense politicization of the standard benign theory of

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‘comparative advantage’, with its model of mutual welfare increase (Timmer et al., 2014, p. 116). Emerging markets embedded in GVCs have largely failed to gain significant amounts of value-added in their manufacturing activities, thus switching their economies to more service-driven sectors. Paus (2012), for instance, has outlined the difficulties that countries stuck in middle-income levels face in their efforts to upgrade within GVCs. The inability of many developing countries to upgrade on GVCs has prompted some authors to bemoan the emergence of ‘premature deindustrialization’ in emerging economies, the process of transitioning to service-based activity before advanced industrial capacities could be properly established (Rodrik, 2016; Felipe & Mehta, 2016).

2.5.1 The basic characteristics of the automotive industry

Between 1999 and 2019 total motor vehicle production rose from 56 million units to 91 million units (OICA, 2019). The auto industry’s lead firms are called original equipment manufacturers (OEMs). These tend to be large multinational corporations (MNCs) such as Volkswagen, Ford, Nissan, GM, Toyota, and Fiat/Chrysler. OEMs handle the highest value-added segment of the production process - the final assembly of all components - but they are also responsible for the design of the vehicle in the pre-production phase, so suppliers have to adjust the manufacture of components accordingly. The supplier line is typically divided into three groups: Tiers 1, 2, and 3. The higher the Tier, the higher the value-added (usually): while Tier 1 production (advanced components and driver systems) requires at least moderate levels of technical skill, Tier 3 suppliers tend to have lower value-added because they only deal with raw material extraction. As the production line moves closer to the end product, (i.e. the vehicle) suppliers tend to become more intimately linked to the direct production and management regimes of the OEMs. Hence, while Tier 3 suppliers might sell lower value-added commodities, they have greater market expansion freedom; for Tier 1 suppliers the opposite is the case.

The auto industry has been characterized as a “typical example of a quasi-hierarchical captive network” (Pavlinek, 2012, pp. 284-5). OEMs largely get to decide the structure of the supplier

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network and are able to exert considerable power despite suppliers usually being legally independent. Although OEMs encourage upgrading along processing lines (i.e. increasing manufacturing output), they discourage functional upgrading which could allow suppliers gain core competences in the final assembly process such as design which the lead firm monopolizes (Rutherford & Holmes, 2008; Pavlinek, 2012). In this sense the auto GVC is most similar to the ‘captive’ model defined by Gereffi et al. (2005). However, Pavlinek (2012) also notes that as OEMs have come to co-design and co-develop key parts with Tier 1 suppliers, the role of suppliers, and their ability to capture value in the industry might be increasing. As Volpato (2004) argues, increasing globalization and outsourcing has compelled OEMs to reorganize their relationships with Tier 1 suppliers in a way which encourages further cooperation and integration. This means that, depending on the kind of suppliers lead firms engage with, and the competences of the suppliers, the governance of auto GVCs might straddle between ‘captive’ and ‘modular’ (according to the Gereffi et al. (2005) taxonomy). At the same time, the auto GVC is an industry type which tends to be highly intertwined with national political institutions, for instance automotive manufacture associations. The pressure national governments put on the industry to create local value-added has caused much of the industrial organization of major production networks to settle on a national or regional scale (Sturgeon et al., 2008). This explains why, despite significant outsourcing by MNCs, global auto production is embedded in national or regional clusters.

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Figure 2: Basic structure of the automotive value chain. Source: Author’s own construction.

Section 3: Data Collection & Methodology

3.1 Qualitative Comparative Analysis

Qualitative research is conducted with the aim of extracting deeper meanings or processes from the social world (Labuschagne, 2003). Qualitative comparative analysis (QCA) is a common methodological tool used by a wide array of social scientists (Rihoux, 2006). The central purpose of QCA is “an exhaustive explanation of the phenomenon under investigation” through comparison (Legewie, 2013, p. 7). In social sciences, because obtaining control variables is

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difficult, comparisons across various cases is often the best way of determining the strengths and weaknesses of a given variable or hypothesis (Wilder, 2017, p. 49). Comparison is meaningful not only for dissecting single cases into their composites, but also for generating insights that would not have been revealed in the case of studying a single phenomenon in isolation. QCA “point[s] out the different (combinations of) conditions that can produce an outcome… abstracting from the idiosyncrasies of single cases,” thus helping create a more comprehensive understanding of each case (Legewie, 2013, p. 17). This makes it an extremely incisive mid-range theory development tool (Ibid). The emphasis on differences is highly pertinent. In a way, QCA echoes Mill’s ‘method of difference’: two or more cases are compared to see what they do not have in common, which is then identified as the cause (Mill, 1843). QCA is also a ‘middle-way’ approach between quantitative and qualitative research, combining the variable-oriented aspects of the former with case-oriented quality of the latter (Ragin, 1987, p. 84). Significantly, the method can be used to compare and contrast public policy in the context of different political regimes in order to generate novel insights on how different regimes function.

The benefits to such an approach are manifold. Overall, comparative analysis “raises the possibility of much richer insights concerning the influence of cultural milieu, political competition, and governmental structures themselves on the characteristics of public policy” (Cyr & deLeon, 1975, p. 7). It is essentially an “inexpensive social experiment” that delineates “national limitations of generalizations about policy” (Ibid). Comparative analysis is holistic, in that it considers each individual case as a complex body in and of itself (Rihoux et al., 2011, p. 11), but this leaves plenty of room for interpretation and interrogation of individual components since the characteristics of each case are laid bare next to the other(s). It is also holistic in the sense that it bridges the approaches of qualitative and quantitative social science research (Ragin, 1987). Further, comparative analysis recognizes that “interdependence [between different national policies] magnifies the need for coordination of national policies” (Cyr & deLeon, 1975, p. 8). Managing and coordinating problems with a transnational stretch in terms of their social, political, and economic repercussions requires complementing an understanding of one regime’s policies with those of another. As many ‘national’ problems in today’s international political economy have global or transnational causes and effects, such an approach becomes an integral tool for policy analysis. The goal, then, becomes not the identification of a single causal model that has the best

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fit for the model, but rather to evoke and categorize different causal models that exist in different cases (Rihoux et al., 2011; Ragin, 1987).

Comparative analysis bleeds into the study of political economy and industrial policy. International Political Economy, as an ‘inter-discipline’, owes the core of its analytical ingenuity to the recognition that as the global system becomes more connected and interdependent, “national systems could no longer [merely] be considered their own” (Underhill, 2000, p. 805). Comparative specialization must also exist in tandem with expertise in the structures of the global system, as everything from national policies to organized business interests have come to carry global connotations (Ibid, p. 812). One of the most prominent bodies of literature produced by the comparative approach has been the varieties of capitalism literature. The basis for categorizing and contrasting different welfare regimes across different advanced capitalist states was established by Coates (2000), Hall & Soskice (2001), and Amable (2003), subsequently expanding into ‘transition’ economies (e.g. Myant & Drahokoupil, 2012; Feldmann, 2006), as well as other emerging economies (e.g. Claar & Nölke, 2013). More specifically, a number of recent studies have used insights from both the varieties of capitalism paradigm and the GVC approach to generate analyses of comparative industrial policy, notably in the automotive industry. For instance, Barnes et al. (2017) has done this for South Africa and Thailand; Natsuda & Thoburn (2014) has looked into the Thai and Malaysian auto industries under the trade regime of the WTO; Santarcangelo et al. (2018) has for Argentina, Brazil, Chile and Mexico has done it in an attempt to reconcile differences in different Latin American auto industries; and Black et al. (2020) has analyzed Egypt, South Africa, Turkey, and India under the same pretext. Most of these studies have looked into the particular ‘policy space’ (Kumar & Gallagher, 2007) generated by TIRs or free-trade agreements on economically significant industries such as automotives, and whether they increase or reduce the policy options of national institutions. Nonetheless, a study in this vein that systematically compares Turkey and Mexico’s auto industries does not exist. Further, currently not systematic comparisons of the political economy of EV industries between developing economies exist, presenting a gap in the literature.

This thesis will use a combination of primary data, secondary sources, and insights from directly conducted interviews to analyze the Turkish and Mexican auto industries from a QCA perspective.

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3.2 Interviewing

Interviewing is the most widely used form data collection in qualitative research (Creswell, 2007). Interviewers are able to gather information about participants’ experiences, views or belief systems, which forms the basis of qualitative research (Ryan et al., 2009). In order to achieve the highest ‘quality’ interview, the interviewer must be able to achieve a number of things: broadly speaking, these include spontaneity, extracting rich and relevant information from the interviewee, and making sure the interview presents itself as a self-contained story that easily communicates its main messages to an external audience (Kvale, 1996, p. 145). At the same time, while the interview must offer a coherent story within itself, interviews of experts or political elites can hardly exist in isolation; they must confirm or enforce the credibility of findings acquired through other sources (Tansey, 2007, p. 766). Because important political decisions or events can often take place without any clear-cut documentation, interviews exist to help bridge this vacuum between real world occurrences and the wider body of data that already exists (Tansey, 2007, p. 767).

Interview data can be also readily used for qualitative triangulation. Triangulation refers to the use of multiple methods, multiple theories, or different data sources in order to create a multidimensional research design with the aim of boosting the study’s credibility (Denzin, 1978). Essentially, by asking questions with a slightly different but complementary angle on already existing data, triangulation helps deepen one’s understanding of the topic, and makes for a more nuanced analysis (Jentoft & Olsen, 2019, p. 181).

Naturally, interviews possess a number of caveats. Related to Tansey’s (2007) assertion that interviews cannot exist in isolation, it matters that interviews should not be interpreted as a sufficient qualitative method for dissecting the real world (Walford, 2007). In this respect, interviews are simply additional pieces that fit into the puzzle. Notably, after the interview, interviewers can have difficulties with matching the contents of the interview with the epistemological and theoretical underpinnings of the research design (Roulston, 2010, p. 203). As the researcher and interviewee may be approaching the issue from different perspectives, the knowledge produced through the interview must be applied with a corresponding appreciation of these differences. Further, interviewees may harm the validity of the interview through what

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Douglas (1976) terms ‘misinformation, evasion, lies and fronts’. The validity of some of the interviewees’ responses must be considered with great care, especially if they cannot be checked by similar sources. Concomitantly, interviews on tough or emotive situations (which can occur in political science) must be approached with care so as to not distress the interviewee and thus harm both the ethical and logical foundations of the interview (Lowes & Paul, 2006).

This thesis integrates interviews into the comparative policy analysis. The two interviews that are featured took place on May 20th and May 28th, 2020, respectively, through an online Skype call. The interviews followed a semi-structured format. They were recorded with the consent of the interviewees. Due to the ongoing Covid-19 pandemic, the possibility of physical face-to-face interviews could not be explored. The interviewees themselves were chosen on the basis of their merit and expertise in their respective fields. Because the analysis of this thesis deals with the implications of electric vehicles (EVs) for Turkey and Mexico, expertise in EV transition and renewable energy investments was fundamentally emphasized during the choice process. It should be noted, however, that these two interviews in no way present a holistic picture of the topic of this thesis. They provide nuanced perspectives for the respective countries, but conducting more interviews to expand the current stock of knowledge is certainly a possibility that future studies can consider. The first interviewee is an analyst at the ICCT (International Council on Clean Transportation) with a specialization in environmentally-friendly vehicles and standard adoption in Mexico and Latin American. The second interviewee is an analyst at the SHURA Energy Transition Center in Turkey, with a specialization in renewable energy transition strategies within the private sector, civil society, and government agencies in Turkey. The contents of the interviews have been cited as Expert A (2020) and Expert B (2020), respectively.

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Section 4: Situating Mexico and Turkey in the Middle-Income Trap

Scholars have made note that in many ways the economies of both Turkey and Mexico belong to the MIT. The general economic trend of failing to break out of the MIT has also become endemic within these countries’ respective automotive industries. This section will firstly introduce the concept of a middle-income trap. Secondly, it will provide a historical overview of each country’s auto industry and concomitant industrial policies. The aim will be to highlight the key policy doctrines applied during given periods and their political and economic contexts. Afterwards, it will compare the two cases and analyze how, despite a combination of differences, both countries became stuck in a middle-income trap. It will conclude by arguing that many of the factors presented in the historical overview will significantly carryover to decarbonization prospects for the future. Those arguments will be analyzed in detail in the following section.

4.1 The Middle-Income Trap: A Primer

The ‘middle-income trap’ (MIT) has become the subject of widespread debate in the fields of development economics and political economy, both as an indicator and as a form of a ‘vicious circle’ that demands varying policy responses and institutional change to ‘escape’ from. Recently, the World Bank reported in its China 2030 report that since 1960, of 101 countries that had been identified as ‘middle-income’, only 11 had become ‘high-income’ by 2008 (World Bank, 2013). Although it is very easy to classify ‘middle-income’ as an absolute income bracket, as the World Bank has done, this quickly belies the underlying social, political, and institutional dynamics that shape the MIT quagmire. By this logic, the MIT would not in any way call into attention an assessment of a normative ‘trap’, since it would merely signify countries that are either in a lower- or upper-middle income bracket2 (World Bank Blogs, 2013). Even relative indicators, such as the Catch-Up Index constructed by Woo et (2011), which expresses all countries’ per capita incomes as a percentage of US per capita income, does not convey sufficient information about institutional effectiveness and quality of market governance in these economies.

2_{The World Bank classifies lower-middle income as being in the bracket of $1026-$3995, and}

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Figure 3: Escapees and non-escapees of the MIT. Source: Bulman et al., 2014, p. 9.

The significance of the transition away from the MIT is emphasized by Glawe & Wagner (2016), who argue that it is precisely because this stage of the development process requires the greatest jump in social, political and institutional governance standards that it is the trickiest. Unlike the final or earliest stages of economic development, the MIT requires rampant institutional change. While the idea itself was theorized for Asian countries, since the 2000s it has become more obvious that the predicament of the MIT is one that is more closely aligned with Latin American economies, in particular countries like Brazil or Argentina, which not only have failed to achieve noticeable increases in GDP per capita since the 1980s, but have also consistently floundered in high levels of inequality, poor governance, and high levels of corruption (Glawe & Wagner, 2016, p. 3). As Doner & Schneider (2016) have emphasized, the MIT is ‘more politics than economics’. Slightly more nuanced economic models have integrated variables beyond simple income measures in order to explain the exact characteristics of the MIT. For instance, Agénor & Canuto (2015) posit that the MIT can be expressed as a lag in productivity growth, causing overall growth to slow down. The factors that trigger this are interrelated: a combination of low-level skills and lack of advanced infrastructure. The logic of the argument is as follows: workers either have low- or high-level skills, and low-level workers can only work in final goods production, which both requires, and leads to, low productivity growth. Activities in the innovative design sector, which has higher value-added, require more investment - in terms of infrastructure and education.

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However, as there are both too few advanced-skill workers and too little infrastructure in innovative design sectors, productivity growth is disinclined to pick up, governments are reluctant to invest further in these areas, creating a vicious development trap. Agénor and Canuto (2015) refer to this as a “two-way causality between education and innovation” (p. 656).

Figure 4: Stages of catching-up process. Source: Ohno, 2009.

Other authors have adapted Rostow’s (1960) ‘stages of economic growth thesis’, charting out more advanced variations on his standardized skeleton of five stages of economic development. The MIT in Ohno’s (2009) model is defined as the ‘invisible glass ceiling’ bifurcation between countries in the secondary stage of development (simple manufacturing under foreign guidance) and those in the tertiary stage of development (production of high-quality goods, having mastered technology and management). The leap from stage two to stage three would take place through the harmonization of foreign guidance and expertise with human capital accumulation. Passing through the ‘invisible glass door’ could roughly be equated to the transition of an economy like Vietnam into one similar to Taiwan or South Korea. Because the ‘invisible glass door’ constitutes the most difficult transitionary period, it would be the most time-draining part of the catch-up process, the one that would require the most intensive harmonization and internalization of existing economic resources and capabilities. Once breached, the rest of the catch-up process – that is, transitioning from producing high-quality, high value-added goods to harnessing the entirety of an economy’s innovative capacities and becoming a global leader – would be relatively streamlined.

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The same could be said for the lower end of the catch-up process: developing from a highly dependent, monocultural and largely agricultural economy to possessing simple manufacturing faculties is relatively straightforward. It is the higher end of the middle of the development curve that is hard to get. Although Ohno (2009) characterized this catch-up phenomenon as pertaining to ASEAN (Association of Southeast Asian Nations) countries, it is also applicable to non-Asian economies.

As some authors have noted, transitioning out of the MIT has to do essentially with replacing low-wage, labor-intensive industries with the creation of new industries that have a greater focus on physical capital, human capital, and knowledge formation – all which lead to greater value-added (e.g. Spence, 2011). The quest for moving away from labor-intensive to capital-intensive economic activity is the most preliminary theoretical step for this transition, but the exact governmental and institutional structures that have to be erected are far more variegated. They are also much more widely debated. Kang & Paus (2020) contend that, although a vast corpus of literature already exists on development and the MIT, these approaches (being that they are largely based on mathematical economic modelling) disparage social, political and institutional complexities for simplistic policy recommendations for higher infrastructure investment, education, and the proliferation of free-market business conditions (p. 651). What studies should focus on is the unpacking of these social, political and institutional realities in two ways: firstly, by laying down the domestic challenges to improving innovation capabilities, and secondly, by exposing the effects of external forces on innovation activities, especially when they interact with domestic policies and modes of governance (Kang & Paus, 2020). This approach should be in line with what Doner & Schneider (2016) have theorized about the importance of politics and institution-building in the development process, as well as the political economy of domestic and external coalitions national innovation and technological advancement policies (Klingler-Vidra & Wade, 2020), and the politics of global value chains for emerging economies (Raj-Reichert, 2019). With this gap in the literature in mind, it becomes even more pertinent to investigate the political economies of the Turkish and Mexican auto industries in the context of the MIT.

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4.2 The Turkish Auto Industry

4.2.1 Historical overview

Demand for road vehicles in Turkey first started growing in the 1950s, as the Turkish government started to implement major road and infrastructure projects that would help bring about rural to urban migration (Yulek et al., 2020, p. 5). The expansion of road networks was boosted by funds flowing in from the Marshall Plan (Ibid). During 1950-51, investments on highways, and those by the Ministry of Economy and Commerce, which included “trucks, truck reserves, rubber tires, machine reserves”, received a total of $13.8 million assistance from the Marshall Plan (Koca & Koca, 2017, p. 95). These infrastructural investments paved the way for the first domestic automotive producers. In the 1950s and early 1960s, several assembly plants under international licensing emerged: Türk Willys Overland (1954), Turkish Automotive Industries (1954), Otobüs Karoseri (1959), among others (Yulek et al., 2020, p. 5).

The 1960s introduced the first serious phase of import substitution in the automotive industry. Under the First Five Year Development Plan (FYDP) of 1963-67, a number of major bus and truck plants were established, including Otokar (1963), MAN, A.I.O.S., BMC, Karsan (1963), and Mercedes Benz (1968), although automobile production was more reluctant to grow at first (Taymaz & Yilmaz, 2017, p. 4). According to Yucel (2015, paraphrased in Taymaz & Yilmaz, 2017, p. 4), the First FYDP included specific references to policies that were expected to be conducive to the growth and industrialization of the domestic auto production industry. The Assembly Industry Directive of 1964 was very much in line with the initial industrialization and development plan, and sought to increase local value-added in domestic production, with an emphasis on trucks and buses rather than automobiles (Taymaz & Yilmaz, 2017, p. 4; Yulek et al., 2020, p. 9). During the First FYDP, the overall industrialization process of Turkey was largely assisted by State Economic Enterprises (SEEs) which were “of the greatest importance” as they provided key bouts of investment and jobs in industrial sectors (Carey & Carey, 1971, p. 342). These SEEs had the capacity to incur losses and also supported the directives of the FYDP by creating investment opportunities in areas where the private economy was too weak to grow by