OECD Economics Department Working Papers
Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.
The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.
- ISSN: 18151973 (online)
- https://doi.org/10.1787/18151973
Enhancing Turkey's Growth Prospects by Improving Formal Sector Business Conditions
Turkey's business sector has achieved high growth over the past few years and - on average - has
coped well with increased competition. However, some labour-intensive sectors lost competitiveness prior
to the currency depreciation in mid-2006 and faced employment losses, raising political pressure for
interventionist policies. This paper argues that the government should resist such pressure and instead
follow a broad-based strategy to improve framework conditions for firms, irrespective of their size, sector
and legal status. Overcoming the duality between the formal and informal sectors should be the central
point of this strategy. In particular, the cost of labour should be reduced and regulatory hurdles in labour
and product markets should be minimised, to help formal firms to remain competitive and increase
employment. This would also make it easier for the many small and medium-sized firms to move into the
formal sector, thereby raising productivity through economies of scale. This would increase the growth
potential of the whole economy, broaden the tax base and level the playing field for doing business in
Turkey, not only for the wide variety of domestic firms but also for foreign investors.
Keywords: Turkey, informal economy, industrial competitiveness, regulatory reforms
JEL:
L60: Industrial Organization / Industry Studies: Manufacturing / Industry Studies: Manufacturing: General;
K20: Law and Economics / Regulation and Business Law / Regulation and Business Law: General;
L11: Industrial Organization / Market Structure, Firm Strategy, and Market Performance / Production, Pricing, and Market Structure; Size Distribution of Firms;
L16: Industrial Organization / Market Structure, Firm Strategy, and Market Performance / Industrial Organization and Macroeconomics: Industrial Structure and Structural Change; Industrial Price Indices
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