Openness and deindustrialization: A Turkish case

Abstract

Since the 1980s, a decreasing trend in employment and real value added shares in the manufacturing sector in some developing countries including Turkey is considered a sign of premature deindustrialization (Rodrik, 2016). We examine this argument and the effects of trade shares and policies on the industrialization process by utilizing different openness measures for the periods 1995-2009 and 2005-2014 for more than twenty manufacturing and service sectors. The estimations show that the value added shares of net exporter manufacturing sectors increase significantly and the employment shares decrease significantly, which may suggest employment deindustrialization in Turkey. However, this negative effect is not valid for all manufacturing sectors. Hence, we conclude that Turkey has not been on the deindustrialization track during the period considered. Estimates for the relationship between openness and deindustrialization suggest that trade, FDI inflows, and backward participation have negative impacts on the share of employment and value added of manufacturing sectors. Overall, Turkey should design and pursue proactive trade and financial policies to effectively integrate with the global economy and benefit from it.