The Turkish Economy at a Crossroads: Unpacking Turkey's Current Account Challenge

This paper aims to discuss Turkey's economic challenges, their causes, and the government strategies to overcome them, with particular reference to the current account deficit. The Turkish economy has achieved important progress over the last decade thanks to respectable growth rates. However, high current account deficit has also become one of the pronounced structural weaknesses in the post-2002 period. This paper argues that Turkey's current account deficit is mainly a structural phenomenon. Accordingly, chronic trade deficit lies at the root of the problem. In order to address the current account deficit challenge and overcome the middle-income trap, high-technology content of the export sector must be increased. This requires a proactive state in the industrial policy realm and consolidation of inclusive political and economic institutions that foster creative thinking and high value-added production.

Paper produced within the framework of the project Turkey, Europe and the World [5].