The Political Economy of Turkey's Economic Miracle

This article focuses on the second part of the liberalization epoch in Turkey which started in 2001 and heightened in 2002 with the establishment of the AKP government. In order to assess Turkey's performance during this period, we first investigate Turkey's GDP and export growth performance by comparing Turkey with four income groups. We show that, while Turkey's GDP grew faster only than the high income countries, exports fell behind of all the income groups. We then deal with the current account deficit and external debt. Our analysis shows that Turkey is one of the leading countries in terms of the increase in current account deficit. Although external debt to GDP ratio has declined since 2003, the International Investment Position—(an indicator which shows the total financial resources externally borrowed)—to GDP ratio has increased very rapidly. This article concludes by arguing that although Turkey has attracted substantial financial resources, only a small portion of them have been invested into the productive economy, which is evident from declining investment to GDP ratios. Turkey's economy signifies another bubble economy where economic growth is led by domestic demand which is supported by external resources. Turkey's economy is, therefore, neither a ‘miracle’ nor even a mild success story.