How did the Turkish Industry Respond to Increased Competitive Pressures, 1998-2007?

This study examines how Turkish manufacturing industry responded to increased competitive pressures that it has faced over the past decade. Pressures arose both from growing trade competition from low-cost countries which have similar trade specialisation patterns to Turkey’s, and from strong trend real currency appreciation that Turkey has experienced during this period. In response, Turkish manufacturers increased their productivity, differentiated products, moderated wage growth and drew on declining capital and imported input costs. The study provides a detailed statistical analysis of these avenues of response, and the contribution they brought to the competitive margins of the manufacturing industry. It shows that while the structurally strong sectors of the economy made successful use of these avenues, the less sophisticated and lower-technology activities using low-skilled labour and low-price local inputs could not fully cope, and lost ground. The latter sectors’ still large weight in total manufacturing output and employment makes their adjustment a persisting challenge for the Turkish economy.