Turkey in EU, economically feasible? An analysis of Turkey's economic growth potential in light of the EU Lisbon strategy

Beer, Maarten (Dogus Author)The aim of this thesis is to give an insight in the feasibility of Turkish accession into the EU in light of the Lisbon Strategy. Therefore, the strategies towards growth between Turkey and the EU have been compared. Similarities are found in the prioritisation of a stable macro-economic environment, investment in R&D and the focus on SMEs. In the Lisbon strategy increasing employment is a major goal, while this is less the case for Turkey. Next, economic aspects surrounding accession have been analyzed. Gains from accession go primarily to Turkey, estimated at between 4,9 and 6,5 additional annual growth of GDP. Labour migration from Turkey to the EU is expected to be modest. Estimations for the total migration inflow by 2030 range from 960.000 to 2.200.000 in the most negative scenario. The performance of Turkey in attaining the goals set in the Lisbon strategy is relatively poor. In comparison to the average of the CEECS countries, Turkey is especially lagging regarding employment and productivity, the labour force education level and the high government debt. However, this implies at the same time that under the right conditions, Turkey's growth potential could be explored, reducing the gap within a clear timeframe. Catching up at an annual rate of at least 2,5 percent would reduce the GDP gap by 30 percent in the next 10 years. Increasing labour participation to CEECS average would mean an increase of 4,9 million workers. A strong institutional setting is necessary to explore Turkey's growth potential. Most important from short run to long run are 1) a stable macro-economic framework, with government budget balance and low inflation 2) enhancing facilities for SMEs and reducing corporate tax rates 3) increasing labour market flexibility and 4) increase education level of the workforce. With these measures in place Turkey might be able to catch up fast with the Lisbon goals, making accession of Turkey more feasible on economic grounds both far herself and the EU.PREFACE, I -- SUMMARY, II -- TABLE OF CONTENTS, III -- LIST OF FIGURES, IV -- LIST OF TABLES, V -- INTRODUCTION, 1 -- CHAPTER ONE: THEORETICAL FRAMEWORK ON GROWTH, 3 -- 1.1. Solow model on growth, 3 -- 1.2. Endogenous growth model, 5 -- 1.3. International trade and capital flows in growth models, 5 -- CHAPTER TWO: COMPARISON OF STRATEGIES TOWARDS GROWTH, 7 -- 2.1. Turkey and its strategy far growth, 7 -- 2.2. EU and the Lisbon Strategy, 12 -- 2.3. Comparative analysis, 19 -- CHAPTER THREE: ECONOMICS OF ENLARGEMENT, 21 -- 3.1. Trade theory and regional integration theory, 21 -- 3.1.1. Standard trade mode, 21 -- 3.1.2. Strategic trade theory, 23 -- 3.1.3. Regional integration theory, 24 -- 3.2. Gains from enlargement, 25 -- 3.3. Migration issues, 28 -- 3.4. Institutional aspects and the prospect of catching up, 32 -- 3.5. Conclusion, 33 -- CHAPTER FOUR: THE TURKISH ECONOMY IN A STATISTICAL COMPARATIVE ANALYSIS IN LIGHT OF THE LISBON AGENDA, 34 -- 4.1. Turkish economy, 34 -- 4.2. Statistical comparative analysis, 41 -- 4.2.1. Comparison on governance and competitiveness, 42 -- 4.2.2. Maastricht and Lisbon criteria, 44 -- 4.2.3. Comparative statistics, 45 -- 4.2.4. Turkish situation in light of the Maastricht and Lisbon criteria, 50 -- CHAPTER FIVE: DISCUSSION AND CONCLUDING REMARKS, 52 -- 5.1. Discussion, 52 -- 5.2. Concluding remarks, 62 -- BIBLIOGRAPHY, 65 -- ANNEX 1 DESCRIPTION OF STRUCTURAL INDICATORS, 68 -- ANNEX 2 THE CONCEPT OF CONDITIONALITY, 7