Evidence of Turkey Falling into the Middle Income Trap (Article)

There are now two distinct bodies of study that explain why middle-income nations fall behind high-income countries using political and economic characteristics. It is generally accepted that it is difficult to distinguish between these two categories of literature, even if both produce results that should be treated seriously. Nonetheless, this analysis suggests that MIT’s Convergence Hypothesis—one of the main outcomes of the Neo-Classical development model—is not actually achieved in reality, based on the literature that contains economic data. As a departure from the Convergence Hypothesis, an attempt was made to identify the similarities in the economic reasons of MIT through a survey of the literature. Research indicates that the financial and economic liberalisation processes brought forth by globalisation have negative effects on middle-income nations. This study attempts to identify the types of causal interactions that contribute to the Turkish economy’s middle-income trap by reviewing relevant literature. With technological developments, differences between countries are deepening. The results of this study showed that the Turkish economy was stuck in the Middle Income Trap because of insufficient capital and was unable to boost the level of national income above a particular threshold. However, this analysis also suggests that technological advancements, alongside strategic capital allocation, could potentially offer a pathway for middle-income nations to overcome the middle-income trap. The study highlights the need for further research into how middle-income nations can leverage technological developments and optimise capital allocation to achieve economic convergence with high-income countries. 

1. INTRODUCTION

Conditions of economic growth have been a phenomenon explored since the inception of economic theory. Particularly during the 18th to 20th centuries, when deterministic thinking prevailed, growth theories were developed based on the assumption of a linear growth process for each country. Although Marxism had a different systematic approach, it too did not object to a linear economic growth/development process and foresaw deterministic outcomes. The Socialist countries that emerged with the 1917 Bolshevik Revolution experienced economic growth processes to an extent unforeseen by their adversaries, drawing the attention of mainstream economics. Thus, in the mid-20th century, under the title of “Development Economics,” while implicitly acknowledging that economic growth processes were not linear, suggestions began to be made, especially for developing country categories, on how they could achieve linear growth processes implicitly. One of the most well-known of these suggestions is presented in Rostow’s work titled “Stages of Economic Growth.” This work, self-described as “non-socialist,” focused on providing a roadmap for developing countries to achieve the growth process. During this period, a highly intensive working environment emerged in development economics, and views on how developing countries could rise to the category of developed countries were put forward, provided they did not conflict with liberal economics.

Under this “non-conflicting” condition, Development and Growth Theories reached their peak from the beginning to the end of the third quarter of the 20th century. The most well-known Development Theories and Growth Theories emerged during this period. On one hand, Rostow (1960) attempted to explain the stages of economic growth and how economies showing non-linear (or interrupted) growth could capture the linear process; on the other hand, Solow (1956) presented the Neo-Classical Growth model, which provides the strongest explanation for the linear process of economic growth.

The common feature of these two studies (and indeed this period of thought) is their acknowledgment, whether explicit or implicit, that “growth processes may not be linear.” Two points of Solow’s Growth Theory are noteworthy. Firstly, the assumption it relies on regarding the historical contingency of technological progress, and secondly, the Convergence Hypothesis as a result of the theory. The assumption of contingency had completely disappeared from the agenda by the last quarter of the 20th century, with the acceptance through Internal Growth Theories that technological progress is predictable and even a variable that can be directed.

The Convergence Hypothesis, however, still maintains its place at the center of theoretical debates. This is because economic growth processes that still do not resemble each other are observed in practice. Although neo-classical explanations are attempted for these, the debates continue. In this study, attention is drawn to the contradiction/discrepancy between the convergence hypothesis and the middle-income trap phenomenon, attempting to critically examine both concepts.

This paper focuses on a critical examination of the “convergence hypothesis” in economic growth theory. The convergence hypothesis suggests that developing economies, under certain conditions, will eventually catch up to the economic level of developed economies. The authors challenge this notion by analysing the concept of the “middle-income trap,” a phenomenon where developing countries stall in their growth and struggle to transition to a developed state. By investigating the contradiction between these two seemingly opposing ideas, the article aims to contribute to the ongoing debate on the applicability of linear growth models to developing economies. The research is particularly relevant to policymakers and development economists seeking to understand the complexities of economic growth in different contexts.

In this paper breaks new ground by bringing together the convergence hypothesis and the middle-income trap for a critical analysis. This approach allows for a deeper understanding of the limitations of linear growth models in explaining real-world economic development. The article’s innovation lies in its attempt to reconcile these seemingly contradictory concepts and shed light on the factors that might hinder developing economies from achieving sustained growth. By examining this tension, the article offers valuable insights for developing more nuanced and realistic theories of economic growth. It highlights the need to consider historical contingencies and path dependencies that may prevent a one-size-fits-all approach to development.