Conference Paper
Understanding Brown Lock-In: Evidence from MENA Economies and Firm-Level Insights from Turkey
No.
ERF32AC_201
Publisher
ERF
Date
May, 2026
Topic
Q5. Environmental Economics
This paper examines brown lock-in from two complementary perspectives: country-level patterns in the MENA region and firm-level dynamics in Türkiye. Brown lock-in refers to a persistent dependence on brown, low-complexity products that makes it difficult for economies and firms to shift toward greener and more sophisticated activities. Understanding both the level and the evolution of this lock-in, as well as the factors that drive it, is essential for designing effective policies that support structural transformation. To do so, first, we look at brown lock-in patterns in the MENA, a region with strong hydrocarbon dependence and high transition risks, for the period 1999-2023. Using country-level Brown Lock-In (BLI) index, we examine differences across countries and estimate how brown lock-in relates to macroeconomic outcomes through a two-way fixed effects approach. In the second part, we shift to the firm level and calculate BLI indices for Turkish exporters using detailed HS-6 product data, for the period 2013-2023. This lets us study how product complexity, export diversification, and brown intensity shape firms’ exposure to transition risks, offering the first micro-level evidence of brown lock-in dynamics in a major emerging economy. To do so, we apply a Heckman two-step procedure to control for selection bias in firms’ export decisions, and then identify the main factors that shape firm-level BLI scores. Understanding these determinants is important because it shows which types of firms are more vulnerable during the green transition. Our results for the MENA region show that financial globalization reduces brown lock-in, indicating that greater access to global financial markets can help countries move away from simple, resource-based export structures. In contrast, trade globalization increases brown lock-in across all country groups, suggesting that current trade patterns reinforce existing specialization in low-complexity products rather than encouraging diversification. The MENA results also differ between oil exporters and oil importers, reflecting the distinct structural constraints and export profiles of these two groups. These findings highlight the need for policies that deepen financial integration while restructuring trade incentives. Expanding access to stable, long-term international finance may support upgrading, whereas trade policies should focus on capability building and the development of higher-value export sectors. The firm-level analysis for Turkiye shows that financial conditions are central to understanding brown lock-in. Leverage consistently increases firms’ BLI scores, indicating that more indebted firms remain more dependent on brown and low-complexity export products. By contrast, firm age and firm size reduce brown lock-in, suggesting that experience and a modest degree of scaling help firms gradually diversify their product mix. In manufacturing, total factor productivity also has a negative and significant effect, showing that more productive firms are better able to upgrade and move away from brown activities. Our results also differ across sectors and firm sizes, indicating that brown lock-in is not uniform but shaped by firms’ structural and operational characteristics.