Even though there is no commonly accepted definition of knowledge economy there are four essential and correlated basics of knowledge economy K. Smith, "What is the 'Knowledge Economy'? Knowledge Intensity and Distributed Knowedge Bases", Discussion Paper Series, The United Nations University, 2002, p.8:

Firstly, knowledge is becoming more important input of all processes.

Secondly, the trade volumes of knowledge based products are increasing.

Thirdly, reliance on codified knowledge is becoming a competitive base for organizations.

Finally, knowledge economy is becoming highly dependent on technological changes in ICT.

Knowledge has always been the main contributor of innovation. The economics of innovation has focused on learning, technology and research. "Building Knowledge Economies: Opprtunities and Challanges for EU Accession Countries", Final Report of the Knowledge Economy Forum 'Using Knowledge for Development in EU Accession Countries', Paris 2002 The term "innovation", Likewise "knowledge economy", is somewhat ambiguous. According to the definition proposed by the OECD in its "Frascati Manual", it involves the transformation of an idea into a marketable product or service, a new or improved manufacturing or distribution process, or a new method of social service.

Being a developing country, Turkey focused on manufacturing and industrialization in its development policies. Before the early 1980s, Turkey did not have a national science policy. In 1983, the Government issued the first policy document "Turkish Science Policy, 1983-2003" that mainly focused on increasing R&D activities. Simultaneously, the Supreme Council of Science and Technology established. The council is chaired by the Prime Minister and composed of the top level representatives of related ministries and public administrations.

The main objective of the science and technology policy is defined as "establishment of the National Innovation System that would enable systematic operation of the whole institutions and mechanisms required to carry out scientific and technological research and development activities and to transform the results of those activities into economic and social benefit".

The innovation policy of Turkey is embedded in its Science and Technology Policy. The essential policy document focusing on Turkish innovation policy (the Science and Technology Policy of Turkey, 1997) covers immediate arrangements and preparations for establishment of the National Innovation System. Turkish Innovation Policy was shaped by a broad policy community including all related public and private bodies as a result of external drivers like globalization and free trade with Since the main objective of the innovation policy is to establish a national innovation system with all elements as a network, it is largely coherent with the objectives set in the 2000 European Commission Communication on Innovation. On-going and systematic monitoring and evaluation activity for major Government funded innovation support schemes started in 1999. Enterprise Directorate General, "Innovation Policy in Seven Candidate Countries: The Challenges", Final Report, March 2003, Compiled by Þirin Elçi

As a part of this support schemes, the Technological Development Zones (TDZ) Law was enacted in 2000. The law, discussed in Section-II, promotes the establishment of science and technology parks under the guidance and lead of universities.

Since year 2000, twelve TDZ have been established in four cities of Turkey, becoming a significant player of Turkish innovation and research policy. With this framework, TDZ mainly influence the supply side of knowledge economy. Most of the companies operate in TDZ are dealing with ICT products and services. Almost ninety percent of these companies are high technology based SMEs. They generate and share knowledge effectively and rapidly. Furthermore, their interactions with universities yield knowledge based new activities from the changes of curriculums to patents and different ways of university-industry and interindustry collaborations.

Description of the Case

Turkish Economy

Turkey experienced a positive trend in the annual rate of growth from 1996 to 1998 with on average 6.4%, however in 1999, the growth rate contracted by 6.1% due to policies aimed at reducing inflation and declining production because of the earthquake which took place in August of the same year. As a result of the three-year disinflation and structural adjustment program started at the end of 1999, that was supported by a stand-by agreement with the International Monetary Fund (IMF), inflation fell significantly in 2000 (from 84.9% in 1996 to 32.7 % in 2000).

Meanwhile the interest rates sharply decreased below expected levels, production and domestic demand started to increase, GDP by expenditures grew by 7.1 % and as a result an annual growth rate of 6.1 % was achieved. However, since instability in the form of a financial crisis in November 2000 has been transformed into an economic crisis in February 2001, a new program for restructuring the economy and achieving lasting stability had to be designed in April 2001. Although with the new program annual growth rates of -3.0% and 5.0% were foreseen for years 2001 and 2002 respectively, they were reduced to -8.5% and 4.0% following the September 11 events. The inflation rates for 2001 and 2002 were targeted as 65% and 35% respectively1. In 2001, annual growth rate and year-end inflation were -7.4% and 68.5% respectively. The economic program has been implemented successfully with a prospect that targets for 2002 will be met by the end of the year. Growths in GDP and GNP have been 8.2% and 8.8% year on year in the second quarter of 2002. For the first six months of 2002 taken together, GDP rose by 5.2% and GNP by 4.7% year on year. Increases in exports and stocks have been the main components of growth in 2002. The year-end rate was 30 %, below the Government's target of 35 % for 20022.

The year 2003 economic performance was even better with below 20% year end interest rates and

In August 2002, the High Planning Council approved the economic programme of Turkey for 2002-20053. The program covers economic targets for meeting the EU accession criteria. An average growth rate of 5.2 % and an inflation rate of 8 % are targeted by the program. It is aimed to reach a sustainable growth rate and the EU average in the ratio of public debt stock to GNP, and to strengthen the free market economy. It is foreseen that an increase in the growth rate will be mainly achieved by increasing investments and exports. Expected increase in investments and exports are calculated at 14.2% and 6.6% respectively. Due to the recent macroeconomic program, Turkey has gone through a large number of structural reforms. The aim of these reforms is defined as increasing the efficiency of growth and production factors in the country in order to meet the requirements of both globalization and growth based on human capital and technology. Legislative measures taken in that respect are categorized as: a) financial sector restructuring, b) increasing transparency in the State and strengthening of public finances, c) enhancing of competition and efficiency in the economy, d) strengthening of social solidarity. Actions taken to adopt the EU 'acquis', contribute to these efforts to a large extent.

Knowledge Economy Development in Turkey

TDZ in short

The aim of the Technological Development zones Law numbered 4691 enacted in July 2000, through the cooperation of universities, research institutions and the production sector, is to create technological information in order to give the industry of the nation a structure fit for international competition and exportation, to introduce innovations in products and production methods, to raise the quality or standard of products, to increase productivity, to decrease the costs of production, to commercialize technological knowledge, to support production and entrepreneurship, to enable small and medium-sized enterprises to adapt to new and advanced technologies, to create opportunities of investment in technology intensive areas by taking into account the decisions of Science and Technology Higher Council, to create job opportunities for researchers and qualified persons, to help the transfer of technology and to provide the technological infrastructure which will quicken the entry of the foreign capital which, in turn, will provide high/advanced technology. The Technological Development Zones Law, Numbered 4691, Official Gazette

After the enactment of the Law, twelve new science and technology parks were approved by the Ministry of Trade and Industry. These TDZ are established in four different cities of Turkey. Hitherto only five of these are operational while the remaining are still at initial construction phase. The table presented below show a brief summary of the operational TDZ.

Name of TDZ	Years of Operation	Size of Land	Number of Companies	Fields of Operation	Info
ARI Teknokent	1	180 he	7	ICT,	www.teknokent.itu.edu.tr
Cyberpark	1	30 he	42	ICT, software, electronics,	www.cyberpark.com.tr
GOBS	1
Hacettepe Teknokent	"1	120 he	12	ICT, medical	www.hacettepeteknokent.com.tr
METUTECH	3	80 he	120	ICT, software development, electronics	www.metutech.metu.edu.tr

As the Law enforces involvement of universities for establishment of TDZ, each of these science and technology parks are linked with at least one university. All science and technology parks are situated within the lands of universities, in order to create close relationship with university community.

The increasing demand of companies and entrepreneurs encourage universities to invest in establishment of TDZ. One of the main reasons behind the demand of the companies is the tax incentives provided by Law.

The Law provides two types of tax incentives to the companies. First one is the income tax exemption of the research personnel including academicians. With this incentive companies are able to pay more salaries to their staff. Second incentive is the corporate tax exemption provided for the portion of profit generated through research and software development activities. With these incentives, companies are convinced to spend and to invest more in research projects.

METU-Technopolis is the first and the biggest science and technology park of Turkey. Opened in 2000, it hosts around 120 companies employing over 1000 researchers. Majority of the companies are technology based SMEs dealing with ICT and software products and services.

The history of METU-Technopolis started in 1991. At that time, the government of Turkey was planning to invest in science parks, but after a feasibility study funded by World Bank was prepared, the decision was revised and the investment is canalized to incubator centers. Following this decision METU, together with KOSGEB (Small and Medium Size Industry Development Organization) set up an incubation center in 1993. Until today, 68 companies are graduated from the incubation center and over 95% are surviving successfully.

The success of the incubation center encouraged METU to further invest in the idea of science and technology parks. Therefore in 1997 The METU-Technopolis Concept Project and Business Plan were completed. In the same year, the foundation of the first building of Science Park, HALICI Software House, was laid, and the detailed projects for the second building, called METU Twins, was completed. In 1999 The METUTECH Management Model was developed. In 2001 The METU-Twins Building and the METU-Halýcý Software House were put into complete service with no vacancies. In 2003, the third building, Silver Blocks, was put into complete service. The construction of the fourth building, namely the Silicon Blocks, was started in 2003 to meet the rising demand of companies.

Between 1999 and 2004, the number of companies have raised from 13 to 120. The majority of existing companies are operating in ICT and software development sectors. Almost 75 percent of companies are dealing with ICT and software industry. These companies are the supplier of the knowledge based products and services.

Within the year 2003, METUTECH companies have exported 7,5 Million USD of technological products and services. The export markets of the companies are countries like US, Singapore, Hong Kong, Dubai, Holland, Russia, Germany England, etc.

In the last two years the collaboration of companies with the university community has increased notably. The main ways of collaboration are, consultancy services and joint projects. Companies have submitted research projects together with academic personnel and university departments to 6th Framework Program.

The management of the science park is approved for the IRC-Network of the EU. Being the coordinator of the new IRC the management company will assist SMEs to enhance their technological development level.

The management company has applied for the InfoDev program of the World Bank together with the incubation center. If the proposal is accepted then the grant shall be used for the improvement of the ICT infrastructure of the incubation tenants and within the same framework an e-commerce platform shall be developed.

Lessons Learned

The importance of awareness building
The success of METUTECH and the TDZ in general has increased the awareness of public and industry in particular towards research and technology development, innovation and entrepreneurship. Even though innovation and entrepreneurship have always privileged in Turkish culture the role of scientific knowledge and research have not properly been valued. Recently more and more companies are paying attention to collaboration with universities regarding to enhancement of technological level of their products and services, the level of ICT involvement in their production processes, the vitality of research for their competitiveness. Most managers have now realized that research and innovation is the key to compete in global markets.

As the result of above mentioned developments managements are more willing to invest in knowledge and research.

Sensitization policy makers and key constituencies

At the initial stages, following the enactment of the law, there were reservations and hesitations from the policy makers with regard to tax incentives given. However, last four years' performance has showed that proper incentives given for the development of the knowledge economy will pay off immediately by increasing the technological competitiveness of the country. Encouraged by these results the policy makers are planning to expand the level of incentives provided for innovation and research activities.

The successful results are also triggered the attention given to strategic planning for the knowledge economy.

Changes in university community

METU has always been a research university. However, level of university community involvement within industrial based research projects has drastically increased after METUTECH. The university community has discussed and evaluated pros and cons of the science park, and the ongoing attitude in favor of basic research has shifted toward the applied research and technology development leading to innovation.

Within same changes, IPRs (Intellectual Property Rights) have become a major concern of the researchers in university. More researchers are scrutinizing the possibility of establishing their own companies and investing in their own ideas and projects. Hence the number of spin off companies is increasing.

The university management itself has affected by the results. Under the assistance of the companies and researchers the management is adapting educational system with regard to knowledge economy environment. Curriculums are being modified in accordance with the requirements of the companies.

Role of incentives

During these phases for development, the tax incentives given by the Law have become a significant facilitator for the companies. The cash savings stemming from tax incentives are canalized to new research and innovation projects. Since the income tax incentives provided by the Law have a positive cash flow effect on companies' financial statements, the desire of companies to move into TDZ significantly increased. Furthermore the corporate tax incentive has caused more capital to be invested in software development and research activities.

Lack of government financing

During the preparation of TDZ Law, the importance of the initial stage development investments, infrastructure expenses and etc. had been foreseen and therefore an article allowing grant allocations to the management companies from the national budget was included into the wording. However up until now there have been no resources allocated by the Government. That is a major obstacle for new TDZ to overcome the financial difficulty of initial phase development capital requirements.

METUTECH has used a different approach in order to overcome this obstacle. The existing funding facilities used into infrastructure development while upstream investments realized through several fund raising models.

First, eligible companies have encouraged to lease the land and construct their own buildings. Second, advance payment schemes with promotional conditions proposed to companies. And an income sharing build-operate-transfer model was implemented.

The results were successful in all aspects. Over 10 million USD upstream investments developed.

Importance of management

At he beginning, METUTECH managed by university. However, the outcomes were not satisfactory and discouraging. Therefore, university decided to transfer management to professional managers. By forming an executive comity, chaired by Rector, being in charge of development of strategic planning and long term objectives the day by day management assigned to professionals. The results are, so far, pleasing.

The university-industry collaboration

The main goal of the TDZ Law is to increase university industry cooperation with regard to research and technology development activities, in particular. In spite of major improvements made, there are still further steps must be taken there. The existing 35 project collaborations between academicians and companies is important but not sufficient compare to the number of projects running. Especially, university needs to change its attitude towards joint projects and must develop innovative alternatives. One of the alternatives is YUUP recently introduced to the community. YUUP is the abbreviation of Extended National and International Projects. .
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