Trade Liberalization and Competitive Structure in Turkey during the 1980s

All present-day industrial and developing countries have, at one time or another, protected their manufacturing industries. Turkey is no exception. It has protected import-substituting industries over exports and industry over agriculture during the three decades 1950–79. During this period, Turkey followed an inward-oriented development strategy. Until the mid-1960s it was engaged in replacing the imports of nondurable consumer goods by domestic production. By the mid-1960s Turkey was able to satisfy the domestic demand for those commodities. It then had a choices of two strategies: it could either embark on exportation of manufactured goods, or it could move on to the second stage of import substitution. Turkey chose the latter strategy and replaced the imports of intermediate goods and consumer durables by domestic production. But these commodities had different characteristics from those replaced at the first stage. They were highly capital intensive, they required the availability of skilled and technical labour and were subject to economies of scale, with efficient plant size being large compared to domestic needs. Correspondingly high protection of these industries was required. High protection was achieved through tariffs, quotas and over-valued exchange rates. As a result, the incremental capital output ratio increased considerably and eventually the maintenance of the pace of growth became more and more costly.