Can Turkey Avoid the Middle Income Trap?

Can Turkey Avoid the Middle Income Trap?

December 2012

The level of income per capita has increased in Turkey along with the growth acceleration it has achieved over the last few years. However, when we examine Turkey’s development process of the last 50 years, we can observe that it was not able to close the revenue gap with developed countries. It was not able to become a developed, high-income country during this 50 year period.

In economics literature, the concept of the “middle income trap” has come to the fore of development economics, particularly in light of whether the growth performance shown by China over the last decade will slow down or not in the crisis period. Based on the World Bank’s definition, the countries that fall into the middle income trap are on one hand those whose competitive capacity has weakened in manufacturing standard industrial products against poor countries with low wages, while on the other hand they have difficulty converging with innovation-based developed countries.

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Based on the decrease in the fast growth experienced in Turkish economy by the effect of global crisis, discussions on whether Turkey has fallen into the middle income trap have started. However, like Latin American countries, Turkey has also been observed to have been involved in this trap for a long time. Like many Latin American countries, Turkey has not been able to achieve the transition to the status of “high income country,” despite leaving the status of “low income country.” For example, when we examine the growth performance of eight Latin American economies and five Asian economies between the years of 1900-2000, while the economies of Latin American economies failed to change their statuses of middle income countries, five Asian economies moved from the status of “middle income country” to “high income country,” thus escaping the middle income trap. In the same period, Turkey had an economic performance similar to that of Latin America and could not improve its relative status in the world economy.

When we particularly examine the successful achievements of Asian countries, we observe that the most effective factors are the industry, technology and innovation policies applied. Behind the failure of the countries like Turkey, the deficiencies in the application of these policy sets should be sought. Technological deficiencies in the Turkish economy are a fundamental obstacle to sustainable economic growth. Turkey remains very much behind in terms of technological capability and scientific knowledge, skills and human capital accumulation, which are the fundamental elements of competition superiority in high technology, high value-added industries. A new “Industrial Strategy” was introduced by the Ministry of Science, Industry and Technology in 2011 so as to solve these structural problems. In this document, Turkey’s target in the long run is described thus: “To be the center of Eurasia in producing high technology goods.” Therefore, the Industrial Strategy document is targeted to bring micro and macro technology policies together and thus perform the transition from industries producing with low technology to industries producing with high technology.

Like many Latin American countries, Turkey has not been able to achieve a transition to the status of “high income country,” despite leaving the status of “low income country.”

All these targets can only be achieved by using successful science and education policies. Turkey will soon be facing the hazard of stumbling into what’s known as the “middle income trap” in economics literature if it fails to ground its economic growth on science and education-based sources. However, while the Justice and Development Party (AKP) government on one hand claims that it has made breakthroughs to take Turkey out of the middle income trap, on the other hand it contributes to moving Turkey away from a modern and science-based social structure by amendments to the education system called “4+4+4” and removing the independence of the scientific institutions such as TUBA (the Turkish Academy of Sciences), TUBITAK (the Scientific and Technological Research Council of Turkey). Unfortunately, it is impossible for Turkey to become a country that can overcome “the trap” by moving away from a secular secondary education system, by abandoning the autonomy of scientific institutions and universities, and with a technological capability level that is in the very last place in terms of R&D as a share of national income among OECD economies.

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