RECONSIDERING THE NEXUS BETWEEN KNOWLEDGE AND ECONOMIC GROWTH IN AN UNSTABLE ECONOMY: THE CASE OF TÜRKIYE

Fatma Utku-Ismihan and Mustafa Mustafa Ismihan
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Mustafa Mustafa Ismihan: Eastern Mediterranean University

No 1740, Working Papers from Economic Research Forum

Abstract: Building a strong knowledge-based economy is essential for sustained and successful longrun economic growth. However, this presents its own set of challenges, particularly for countries with endemic instability, recurrent crises, and associated low and volatile productivity and growth rates. In this context, this paper draws from the Turkish experience to investigate the role of macroeconomic instability and knowledge on productivity and growth from 1960 to 2022 by developing an augmented production function model. Chronic macroeconomic instability arising from unsound macroeconomic policies has remained a major factor causing persistent inefficiencies in Türkiye, therefore adversely affecting its productivity and output levels. Such economic policies are often associated with weak institutions—such as political institutions that fail to limit the actions of politicians— along with prevalent corruption and a significant level of political instability. The main empirical results indicate that while knowledge accumulation in Türkiye is a critical driver of productivity and growth, the Turkish economy is also persistently and unfavorably affected by chronic macroeconomic instability fueled by recurring unsound policies and deep institutional problems.

Pages: 18
Date: 2024-10-20, Revised 2024-10-20
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