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Rebalancing Turkey’s Growth by Improving Resource Allocation and Productivity in Manufacturing

Author

Listed:
  • Aslihan Atabek
  • Dan Andrews
  • Rauf Gonenc

Abstract

Turkey’s manufacturing sector has expanded considerably but not efficiently and competitively enough. This paper documents the drivers of its recent growth and diversification, and the factors that have held it back. It documents its segmentation and the outsized tail of poorly performing firms, which undermines aggregate productivity growth. Low productivity eases job creation in the short term, but undermines it in the long run and holds back improvements in living standards because of competitiveness losses. A core of well-performing firms (“frontier firms”) is not growing at full potential because of shortcomings in the policy framework. Intermediary (“follower”) firms sustain competition and deliver jobs, but tend to fall behind in productivity. Lower productivity units (“laggards”), which employ a large share of the low-skilled majority of the working age population, survive mostly thanks to the incomplete enforcement of rules and regulations. The resulting stalemate requires a coherent strategy of “systemic upgrading” of the business environment. This would enable all firms to operate in compliance with the law and on a level-playing field, under supportive regulations, taxation and innovation incentives. All firms could then achieve stronger productivity gains and the most promising firms could grow faster. At the same time, a credible flexicurity system needs to be put in place that facilitates adjustment in the labour market while protecting those affected by structural change.

Suggested Citation

  • Aslihan Atabek & Dan Andrews & Rauf Gonenc, 2017. "Rebalancing Turkey’s Growth by Improving Resource Allocation and Productivity in Manufacturing," Working Papers 1704, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
  • Handle: RePEc:tcb:wpaper:1704
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Turkey; Growth; Productivity; Structural change; Taxation; Labour markets; Informality;

    JEL classification:

    • J2 - Labor and Demographic Economics - - Demand and Supply of Labor
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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