Economic development in Turkey and South Korea: A comparative analysis

Abstract

An interesting question in comparative economic development is why Turkey fell behind South Korea even though she had better development prospects in 1960. The existing literature offers illuminating narratives of most plausible reasons, but only a few papers have identified the microeconomic foundations of relative underperformance of the Turkish economy. This paper constructs and analyzes two-sector catching up models to find contrasts between Turkey and South Korea. Results following from data-based calibrations indicate the following: With respect to initial conditions and values of structural parameters, both economies have advantages and disadvantages. The most significant contrast, however, is the huge difference in how efficiently the two countries adopt frontier technologies. While South Korean economy operates with an efficiency level very close to its upper bound of 100%, Turkey is located at the other end of the spectrum with efficiency less than 1%. Counterfactual experiments confirm the dominant role of this efficiency parameter against initial conditions and other structural parameters. An extended analysis indicates that human capital differences can only partially explain the large difference in efficiency levels.