Economic history of Turkey

The economic history of Republic of Turkey may be studied according to sub-periods signified with major changes in economic policy: i) 1923-1929, when development policy emphasised private accumulation; ii) 1929-1945 when development policy emphasised state accumulation in a period of global crises; iii) 1950-1980, a period of state guided industrialisation based on import substituting protectionism; iv) 1980 onwards, opening of the Turkish economy to liberal trade in goods, services and financial market transactions. However one distinct characteristic between 1923–1985, in large part as a result of government policies, a backward economy developed into a complex economic system producing a wide range of agricultural, industrial, and service products for both domestic and export markets the economy grew at an average annual rate of six percent.

At the time of the collapse of the Ottoman Empire (see Economy of the Ottoman Empire) during World War I and the subsequent birth of the Republic, the Turkish economy was underdeveloped: agriculture depended on outmoded techniques and poor-quality livestock, and Turkey's industrial base was weak; the few factories producing basic products such as sugar and flour were under foreign control as a result of the capitulations.

Turkey's economy recovered remarkably once hostilities ceased. From 1923 to 1926, agricultural output rose by eighty-seven percent, as agricultural production returned to pre-war levels. Industry and services grew at more than nine percent per year from 1923 to 1929; however, their share of the economy remained quite low at the end of the decade. The government stepped in during the early 1930s to promote economic recovery, following a doctrine known as etatism. Growth slowed during the worst years of the depression, except between 1935 and 1939 when it reached six percent per year. During the 1940s, the economy stagnated, in large part because maintaining armed neutrality during World War II increased the country's military expenditures while almost entirely curtailing foreign trade.

After 1950 the country suffered economic disruptions about once a decade; the most serious crisis occurred in the late 1970s. In each case, an industry-led period of rapid expansion, marked by a sharp increase in imports, resulted in a balance of payments crisis. Devaluations of the Turkish lira and austerity programs designed to dampen domestic demand for foreign goods were implemented in accordance with International Monetary Fund guidelines. These measures usually led to sufficient improvement in the country's external accounts to make possible the resumption of loans to Turkey by foreign creditors. Although the military interventions of 1960 and 1971 were prompted in part by economic difficulties, after each intervention Turkish politicians boosted government spending, causing the economy to overheat. In the absence of serious structural reforms, Turkey ran chronic current account deficits usually financed by external borrowing that made the country's external debt rise from decade to decade, reaching by 1980 about US$16.2 billion, or more than one-quarter of annual gross domestic product. Debt-servicing costs in that year equaled 33 percent of exports of goods and services.

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