Structural Change and Industrial Policy in Turkey

This paper presents evidence on structural change in Turkey and provides an overview of the evolution of industrial policy in the last three decades. Turkey has experienced substantial growth in labor productivity in the last decade. About two thirds of the increase in aggregate labor productivity arises from reallocation of employment from low to high productivity sectors and one third from productivity increases within sectors. Decomposition of productivity growth using micro-data also reveals an important contribution from reallocation. We also document substantial change in the composition of exports. We argue that structural change was not a direct result of selective industrial policy, simply because the incentive system displayed little sectoral selectivity during the period when major structural change took place.