Engineering Economy: A New Paradigm for Escaping the Middle-Income Trap

Mustafa Ergen

Papers from arXiv.org

Abstract: This paper introduces the concept of Engineering Economy as a new paradigm for understanding and managing macroeconomic policy in middle-income countries seeking to escape the middle-income trap. Drawing on Turkiye's post-2001 economic trajectory and South Korea's successful transition from a low-income to a high-income economy, the study argues that conventional frameworks whether the Washington Consensus's market liberalization prescriptions or the institutionalist critique alone are insufficient. Instead, it proposes treating the economy as a dynamic control system requiring continuous calibration rather than static equilibrium. The paper develops a road-surface metaphor (highway, side-road, off-road) to characterize different global economic regimes and presents eleven interconnected policy pillars spanning venture capital formation, regulatory sandboxes, technology-focused industrial policy, and human capital development. By synthesizing insights from endogenous growth theory (Romer), institutional economics (Acemoglu), the catching-up literature (Lee), cybernetic systems theory (Wiener), and Schumpeterian creative destruction, the framework reconceptualizes macroeconomic instruments through control-engineering analogies: interest rates as energy gradients, fiscal policy as energy flow, exchange rates as balance motors, and regulation as adaptive suspension. The analysis demonstrates that Turkiye's structural challenge is not merely institutional weakness but a systemic absence of R&D demand from its dominant enterprise structures, creating a vicious cycle that conventional reforms cannot break. Seven specific opportunity windows arising from US-China technological rivalry are identified, and a phased implementation roadmap is proposed.

Date: 2026-05
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