Medyada
How Turkey Will Escape the Middle-Income Trap

Turkey's Finance Minister on Vision 2023, his country's plan to reach high-income status in less than 10 years.

Many emerging-market economies grew rapidly during the first decade of this century, advancing from low-income to middle-income status. The next transition—to high-income status—will be harder to achieve. According to the World Bank, out of 101 middle-income economies only 13 have managed to make this jump since the 1960s.

The challenge of escaping the so-called middle-income trap has been compounded by the global financial crisis. The crisis has triggered a general slowdown in the global economy and led to lower productivity in middle-income economies, limiting their ability to further improve living standards.

Turkey's case is instructive. Turkish per-capita income has risen to $10,807, from $3,492 in 2002. Turkey's transition to a middle-income economy was the result of wide-ranging reforms and prudent macroeconomic policies. But despite this progress, Turkey still faces great challenges in its effort to escape the middle-income trap. Success will require sound macroeconomic policies and additional structural reforms. A supportive global economic environment is necessary, too.

But Turkey has a plan, Vision 2023, to get the country to high-income status by the centenary of the modern Turkish Republic. Under this plan, Turkey will by 2023 more than double its gross domestic product to $2 trillion and triple exports to $500 billion annually. To achieve these goals under difficult economic circumstances, Vision 2023 establishes a road map.

Turkey's top reform priority is to enhance the quality of the country's workforce. High-income countries rely more on high-skilled labor, and this is where Turkey needs to make the most progress. The average Turk over the age of 25 has completed only 7.6 years of schooling. That's nearly four years less than the OECD average.

To close this gap, we have increased the duration of compulsory education to 12 from eight years, in line with most high-income countries. The expected average number of years of schooling that a child can expect to receive is now 14. Given Turkey's young population—the median age is 30—this reform will quickly translate into real improvements in the country's human capital.

Turkey has also made great strides in increasing access to education and narrowing the gap between boys and girls in that regard. There are 102 female students for every 100 males attending primary and middle school in Turkey.

But access to education is one thing, quality is another. Despite recent improvements, Turkey's test scores in mathematics, reading and science are still below the OECD average. To improve the quality of education, education spending has become the top item in our national budget. It now accounts for nearly a quarter of tax revenues. With these resources, we have hired nearly half a million new teachers during the past 12 years and increased the use of education technologies, including broadband connections and smart boards for classrooms, and free tablets for students.

The second area where we need to make progress is labor-market flexibility and participation. Obviously, education and labor-market reforms are closely related. Education has been an important factor in increasing the number of Turkish women in the workforce. While the overall labor participation rate among women was slightly more than 30% in 2013, it was up to about 70% for women with a university degree. And in nearly a decade since the release of these statistics, an additional three million women have entered the labor market, pushing up the female participation rate by almost 8%.

The final ingredient for helping Turkey transition from middle-income to high-income status is innovation and technology. Turkey's labor productivity was little more than 40% of U.S. labor in 2012. This underscores the need for additional reforms and investment aimed at boosting productivity through technological advancement.

To this end, we have increased the support for research and development, mainly—but not exclusively—through tax incentives. Between 2002 and 2012, research-and-development spending as a share of GDP nearly doubled to almost 1%. Meanwhile, patent applications have increased by a factor of six and trademark applications by a factor of three. Industrial-design applications have doubled. We hope to further increase R&D spending as a share of GDP to 1.8% by 2018 and to 3% by 2023.

As a result, expect a growing share of the Turkish economy to be involved in the production and export of medium- and high-technology goods and services. Thanks to reforms during the past decade, Turkey's standing in various international rankings—such as the World Bank's Doing Business survey, the World Economic Forum's Global Competitiveness Index and the U.N. Human Development Index—have all risen markedly since 2002.

When Turkey began strengthening its macroeconomic fundamentals in 2002, it set the stage for improvements it has enjoyed during the subsequent decade. With the introduction and implementation of a second generation of reforms, we believe that Turkey will reach its ambitious goals and be a major high-income country by 2023.

Mr. Şimşek is Turkey's Minister of Finance

 

 

WSJ has just published a piece by Minister Simsek, to read the story from the wsj website, please click on the following link

http://online.wsj.com/articles/how-turkey-will-escape-the-middle-income-trap-1412100409?KEYWORDS=mehmet+simsek

To Read the Full Story, Subscribe or Log In

 

01.10.2014