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01 Aug 2004

Relative Income Growth and Convergence

Kemal Derviş / Faik Öztrak / Fırat Bayar / Daniel Gros / Yusuf Işık

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EU-Turkey Working Paper No. 8, 22 pages

Health not wealth should be the decisive criterion when considering the prospects of Turkey’s application for EU membership. This paper assesses the growth prospects for the Turkish economy over the next decade. It implicitly ask whether Turkey can start closing the gap with the EU in terms of income per capita once it has achieved macroeconomic stability and negotiations with the EU provide an anchor for overall economic policy-making.
Viewed from this perspective, the outlook is promising. Turkey is still very poor, compared to most of the existing EU members, but is also more dynamic. The fact that most of the so-called ‘periphery’ is now growing more strongly than the ‘core’ confirms that within an enlarged EU the poorer member countries are likely to prosper and thus cause fewer problems than widely anticipated.
The analysis starts by relating the record of Turkey over the last years, which is a story of ‘ups’ and ‘downs’, with most recently a very strong ‘up’. This is then followed by a comparison of two different metrics: GDP per capita and per worker, which leads us to the issue of demographic trends, which differentiate Turkey from both old and new member states. Some of the structural and regional peculiarities of the Turkish economy are next examined, followed by an evaluation of the factors that should determine growth in the longer run. Finally, two upbeat growth scenarios are drawn.