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What Does It Take For Turkey To Close The Regional Gap?

Can Selçuki's picture
When our friends who are new to Turkey arrive in Istanbul, they are often surprised to find a developed country. Then they may be told that the west of the country is well developed, but there are regions in the east that are really lagging behind. However, upon a visit to Gaziantep or Kayseri, they realize that these cities are doing much better than they initially thought with developing industry and rapid urbanization.

So what  is the story about regional inequalities in Turkey?

Since rapid industrialization took hold in Turkey in the 1950s and 1960s, a development divide opened up between the western and eastern regions of Turkey. However, as the recently published “Turkey’s Transitions” study shows, in recent decades the picture has started to change. Indeed, fast growing firms have sprung up in the Anatolian inland following economic liberalization in the early 1980s. These so-called “Anatolian Tigers” have played an important role in spreading the fruits of economic growth inland.

As a result, and helped by a shift in public investment towards lagging regions, living standards have started to converge. And yet, when we take a closer look, the picture of regional convergence is far from uniform. While some of the traditionally underdeveloped cities picked up in the last decade, others did not fare equally well. Underneath the general trend of regional convergence, a lot of regional divergence remains that calls for better analysis.

Against this backdrop, Turkey stands to benefit from diagnostics undertaken at the regional level in order to identify some of the factors that support regional development or bottlenecks that hold it back. The Regional Investment Climate Assessment (RICA) Project in Turkey aims to identify region specific bottlenecks in the investment climate and inform policy at a granular level. While nationwide surveys such as the Business Environment and Enterprise Survey (BEEPS) capture some variation among regions, the RCIA Project aims to refine the diagnosis.

Jointly sponsored by the EU Instrument for Pre-Accession (IPA) funds and the Ministry of Development of Turkey, the project aims to undertake four main activities during the course of two years. Using the results of a 6000 firm enterprise survey, the team will produce 26 NUTS-II level Investment Climate Assessment Reports as well as a national level report. In addition, the investment support and promotion framework of Turkey will be analyzed and recommendations will be provided to the MoD. In addition, the Project includes a critical capacity building component that aims to improve the capacity of the Development Agency staff in undertaking surveys and analyzing their results. In the future this will provide a continuous flow of data for evidence based policy making at the regional level in Turkey.

Another module of the capacity building component includes the training of investment support and promotion staff both at the regional and national levels. Identifying the main obstacles to regional competitiveness has national importance and significance, as well. Turkey has nearly exhausted the productivity gains from structural change and the reallocation of employment from agriculture to industry and services. The slowdown in overall productivity performance since the global economic and financial crisis in Turkey emphasizes the importance of the shift towards greater within-sector productivity increases to sustain the gains of the past decade. In acknowledgement of the need for new sources of productivity growth the 10th Development Plan of the Government identifies the challenges to overcome the “Middle Income Trap”. Consequently, the plan envisages an overall TFP increase of 1.1% throughout the planning period of 2014 and 2018.

In helping achieve these targets, one of the key areas identified is improving the business environment and investment climate in Turkey. The country moved up the ranks of the Ease of Doing Business index (55th as of 2015) but the lower than desired levels of foreign direct investment signal that there are still important bottlenecks for businesses. Underlining the importance of the subject, one of the 25 Priority Transformation Programs of the 10th Development Plan is defined as Business and Investment Climate Improvement Program. The results of the RICA will inform government policy in this area.

While we hope to gather new evidence through this Project, ultimately its impact will be felt on the ground by businesses which invest in Turkey’s lagging regions and thus help to sustain the process of regional convergence.

What do you think needs to improve for this to happen?

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