work reviewing the municipal sector was completed in 2004 (World Bank 2004). The report pointed to some inefficiencies such: (a) the long-standing practice of meeting the growing service demands with increased allocations from the central budget becoming unsustainable due to fiscal pressures; (b) the system of heavy reliance on budgetary transfers and borrowing through Treasury guarantees not providing incentives for fiscal discipline; (c) traditional administrative control becoming increasingly ineffective to oversee, influence, and guide Turkey’s large and growing urban sector; and (d) the role of the private sector in the delivery and financing of urban services being minimal. Most of these inefficiencies have been addressed by the Government through the Programmatic Public Sector Development Policy Loan contracted with the World Bank in 2006.

The loan also addressed the fiscal challenge implied by the preponderance of small settlement units by including a set of core disbursement conditions that allowed the enactment of four individual laws on Metropolitan Municipalities (Law no.5216, enacted in July 2004), Special Provincial Administration (Law no. 5302, enacted in March 2005), Local Administration Unions (Law no.5355, enacted in May 2005), and Municipalities (Law no. 5393 adopted in July 2005). The new legislative framework transfers or delegates a number of new responsibilities to the local authorities. This gradual transfer of expenditure responsibilities to lower tiers of government is expected to continue. Obviously, the trend will necessitate revisiting the revenue assignments as well because it is clear that the revenues available to the lower tiers of government are inadequate to finance the provision of services for which local administrations will be increasingly responsible for.

# <u>5) Conclusion</u>

The aim of this paper was to assess the impact of the rapid Turkish urbanization process on the country’s sector productivity. We built a database combining two-digit manufacturing data and some geographical, infrastructural and socio-economic data collected at the provincial level by the Turkish State Institute of Statistics. We then developed a parsimonious econometric relation linking sectors’ productivity to accessibility, localization and urbanization economies proxy variables, and controlling for sector and sector-time specific effects. This relation is estimated using different adjustments of the initial database to cope with some specific estimation problems raised by the data.

The specifications pooling all the sectors clearly show the positive impact of a better accessibility to markets, a larger sector in terms of more firms operating in the same sector, and urbanization externalities on sector productivity. The sector-by-sector estimations confirm this result, although the localization economies effect is negative for Non-metallic Mineral sector, and the urbanization economies is weak for some naturalresource-based sectors such as Wood and Metal industries.

Although the data used cover the period up to 2000 and thus ignores the financial crisis that hit Turkey in 2001, the current structural transformation of country away from the agricultural sector gives room to use the insights of these results as a preliminary step in 23