Causes of Growth of Turkish Economy

Introduction

The purpose of this chapter is to provide an additional insight into the analysis of the proximate causes of growth of the Turkish economy in the era of globalization. More precisely, this analysis covers the whole period of 1970-2013, with special emphasis on 1980-2013, which is usually regarded as the era of globalization. As far as source of growth analyses is regarded, some very important research has already been done. Particularly important is the work of Altug, Filiztekin, and Pamuk (2008), which covers a much longer period than 1880-2005. It also decomposes the sources of growth in a more detailed way by considering the contribution of human capital (education), the contribution of sectoral shifts, and some other details. Also important is the research done by Ismihan and Metin-Ozcan (2009), Ismihan (2012), Cicek and Eglin (2009), Ungor and Kalafatciler (2013), Atiyas and Bakis (2013) and others. In contrast to these studies, the research presented here is more focused on the recent historical episode of globalization and it explains, first, why the approach taken here decomposes sources of growth only based on three factors – capital, labor, and Total Factor Productivity (TFP) - and second, why this approach puts a strong stress on the analysis of the demand and industry side sources of growth. It seems that the demand and industry side source of growth analysis can be crucial to understanding the consequences of globalization on both the level and the anatomy of economic growth. So, the majority of this paper will be focused mainly in this direction. Apart from that, a critical review of the most important previous studies on Turkish economic growth, which will be given in the paper, will allow some new important results to be derived that have not been noticed in the original papers.

In order to put this analysis in a broader historical context, let’s first take a glance at the growth performance of the Turkish economy starting from 1870. It is obvious that the Turkish economy started its industrialization and growth at the beginning of the twenties of the last century, see Table 1. In other European countries, this same process started at the last half of the nineteenth century. The late coming of Turkey is, as is well known, the result of the long lasting crisis of the Ottoman empire, the late arrival of the modernistic Young Turks movement, resulting in the dissolution of empire at the end of the nineteenth and beginning of the twentieth century. Table 2 shows that the relative decadence of the Turkish economy reached its lowest level in 1942, when compared to UK and Germany, and in 1970, when compared to Austria and EU12 countries.¹ Note also that in the last sub-period, given in Table 1, which covers the period being analyzed in this paper, 1990-2012, the Turkish economy exhibits a growth slowdown, either regarding GDP or per capita GDP growth.

Source: Authors calculations based on IMF data and Madison estimates