Abstract
The Turkish economy became more stable in the period of 2003–2011 compared with the period of 1985–2003, because the economic crisis that emerged in the 2000–2001 period forced the country to undertake institutional changes. Thus, it could reduce the severe inflation and the volatility of the lira. The Turkish economy gained relative stability. However, this performance is not sufficient for Turkey to become a strong competitive power, compared with the Chinese economy. China linked its wage growth to the productivity growth of non-tradable goods by following export-led growth strategies in the 1990s that contributed to its trade surplus, but Turkey kept wage growth at above the productivity growth of export goods, which reduced its competitive power and deepened its trade deficit. Therefore, Turkey must decrease its wage growth to the productivity growth of non-tradable goods and reduce overvaluation of the lira. To accomplish these goals, Turkey must undertake new institutional changes in its wage–labor relations repress on its wage growth and must transform the floating exchange rate system into the managed exchange rate system by considering policies for its undervalued currency. In other words, Turkey must restrain extensive labor rights related to unionization and collective bargaining and must control the exchange rate to support export-led growth.
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