High-Quality Versus Low-Quality Growth in Turkey

Introduction

• Post-2007 global financial crisis: Emerging economies, including Turkey, experienced rapid growth.
• Growth Concerns: Sustainability issues due to lack of significant productivity and technological improvements.
• Quality of Growth: Measured by Total Factor Productivity (TFP) - disappointing growth in most emerging economies.
• Shared Growth: Inequality concerns with high Gini coefficients in several countries.
• Focus on Turkey: Challenges in achieving high-quality and shared growth, focusing on institutional roles.

High-Quality Growth: Conceptual Framework

• Saudi Arabia Example: Rapid growth due to oil exports, not productivity improvements.
• Definition of High-Quality Growth:
  • Driven by productivity improvements, technological upgrading.
  • Total Factor Productivity (TFP) as a key measure.
• Shared Growth Importance:
  • Growth benefits should be broadly shared within the population.
  • Inequality can lead to political tensions and conflict.

The Quality of Recent Turkish Growth

• GDP Trends: Historical volatility with notable growth from 2002-2006.
• TFP Growth:
  • Period 1989-2017 shows minimal TFP growth, except 2002-2006.
  • Post-2009 era shows high GDP growth but zero to negative TFP growth.
• Exports:
  • Growth in the early 2000s, but technological upgrading has stagnated since 2008.
• Education:
  • Skill shortages hinder productivity, with Turkey lagging in educational attainment and quality.
• Inequality:
  • High inequality levels, as seen in the Gini coefficient trends.
  • Employment growth not from productive sectors but from services and construction.

Institutional Foundations of Low-Quality Growth

• Historical Context:
  • Institutional structure shaped by political dynamics, lack of inclusive institutions.
  • Military and political interventions shaped economic policies.
• Institutional Reforms:
  • Early 2000s: Significant reforms in economic institutions.
  • Post-2007: Reversal of reforms, deterioration in institutions.
• Political Institutions:
  • Early AK Party years brought political liberalization due to EU accession process.
  • Shift post-2007: Political institutions became more constrained, reducing quality growth.

The Way Forward

• Challenges: Addressing institutional framework, focusing on sustainable, high-quality growth.
• Reforms: Need for economic and political reforms to improve productivity and ensure more equitable resource distribution.
• Balance Sheet Concerns: Addressing corporate, household, and banking sector indebtedness for economic stability.
• Future Prospects:
  • Potential for economic stagnation if reforms are not implemented.
  • Importance of capital inflows and improving the business environment.
• Political Dynamics: Institutional reforms closely tied to political changes and coalitions.

Conclusion

• Importance of Institutions: Central role in determining the quality and distribution of economic growth.
• Need for Comprehensive Reforms: Addressing both economic and political institutions to achieve sustainable growth.

These notes provide a comprehensive overview of the main themes discussed in the lecture about Turkey's high-quality versus low-quality growth, emphasizing the role of institutions and the broader political and economic context.