Evaluation of openness effects on economic growth in Turkey

§ IJ ER International Journal of Social Sciences and Education Research ISSN: 2149-5939 Volume: 7(3), 2021 Online, https://dergipark.org.tr/tr/pub/ijsser Evaluation of openness effects on economic growth in Turkey Kerem Özbey1*, İbrahim Boz2 and Ömür Saltık3 *Corresponding author 1 Zafer Development Agency, Turkey ORCID: https://orcid.org/0000-0003-3734-079X 2 Dept. of International Finance and Banking Sector, Toros University, Mersin, Turkey, ORCID: https://orcid.org/0000-0003-2604-8718 3 Department of Economics, Konya Food and Agriculture University, Konya, Turkey, ORCID: https://orcid.org/0000-0001-8507-8971 Article Info Abstract Research Article Especially, after 1980, the effect of labour productivity and capital investments on income per capita observed in open economies in the globalizing trade system has attracted the attention of growth economics literature. In this study, the relationship between labour productivity, fixed capital investments and foreign trade openness in Turkey between 19802016 was examined by the ARDL method. The results match the findings of foreign trade and growth theories which argue that increase in openness of foreign trade, technology factor, labour productivity and fixed capital investments affect the economic growth process in a positive and significant way. In this sense, among the findings, the increasing level of integration into global trade causes technology and know-how transfer, the growth rate increases together with labour and capital efficiency in the next stage. Received:9 April 2021 Revised: 10 July 2021 Accepted: 11 July 2021 Keywords: International trade, Labour productivity, Trade openness, Economic growth, Capital formation 1. Introduction In Turkey, it has been implementing adaptive economic policies which were requirements of domestic and foreign conditions since the 1920s. The development implementations which began with governmental leadership evolved to the subvention of the private sector in the trials of planned industrialization and import substitute and evolving towards increasingly more liberal market structure in the continuation, under the effect of domestic and foreign market dynamics. Especially, the aftermath of the economic and political crises that were witnessed in the 1970s, with a revolutionary political declaration known as 24th January Economic Stability Measures, liberalization implementations transferred into a different level since 1980. In the 1980s, compared to previous periods, real and financial sectors testified a complete liberalization transformation. The excessive implementations of liberalization policies prepared the ground for economic crises of the subsequent 20 years (Yıldırım, 2001; Kazgan, 2002; 2012; Yeldan, 2006; 2013). The period of 2002-2007 was a period of economic restructuring with reform packages. The yield of these reforms has been a five-year stable growth trend. The growth that slowed down after the effects of the 2008 World Financial Crisis was seen as of 2009, declined below the long-term average growth rate. Despite the negativities encountered at global and national levels, no restrictions were imposed on openness in the economy, only increases and decreases were experienced depending on the cyclical developments. As a result of these developments, which started in 1980 after the liberalization moves in Turkey has developed a substantial literature that examined the impact of trade openness on economic growth (Boratav, 2017; Pamuk, 2012). The main goal of our study is to indicate the relationship between trade openness and growth in Turkey for 1980 - 2016 years. Economic growth is an increasing GDP of the country relative to the previous year, in a simple definition. By taking the population effect into account and evaluating economic growth as GDP per capita is important for an accurate calculation. It can be claimed that the most important source of economic growth is productivity as a more technical description. In this sense, productivity is one of the most significant determinants of an economy’s long-term growth (Kepenek and Yentürk, 1994; Yalman, 2009; O’Sullivan et al., 2011). This article is produced from the master thesis defended by Kerem Özbey under the supervision of Dr. İbrahim Boz, in 2018. All responsibility belongs to the researchers. All parties were involved in the research of their own free will. To cite this article: Özbey, K., Boz, İ. & Saltık, Ö. (2021). Evaluation of openness effects on economic growth in Turkey. International Journal of Social Sciences and Education Research, 7 (3), 261-273. DOI: https://doi.org/10.24289/ijsser.912679 Copyright © 2021 by IJSSER ISSN: 2149-5939 262 International Journal of Social Sciences and Education Research, 7 (2021) Improvement and development studies are generally analysed together in literature. Origins of growth approaches and researches go back to the classic economic theory. And all of these approaches acknowledge labour, natural resources, and added value are the components of growth. Growth is evaluated as an exogenous matter completely and explained that growth can occur through improved labour productivity of capital accumulation (Kurz and Salvadori, 2003). The classical theory of international trade, which advocates free trade, developed by the two outstanding British economists; Adam Smith and David Ricardo. Adam Smith in his famous book The Wealth of Nations published in 1776 developed the concept of absolute advantage, the ability of a country to produce a good using fewer productive inputs than is possible anywhere else in the word, which is understood as a basis for international trade. David Ricardo published his ideas on international trade in his book On the Principles of Political Economy in 1819 where he developed the concept of comparative advantage which is the most significant concept of international trade that determines fundamental trade partners. Ricardo’s contribution to international trade theory has been deemed so important, so that classical trade theory is also referred as Ricardian theory (Smith, 2006 (1776); Husted and Melvin, 2010). The classical comparative advantage theory of free trade is a static model based on strictly on a one variable factor (labor cost), and complete specialization approach to creating the gains from trade. It is assumed that in the classical model, trade arises from fixed but different labor productivity for different goods in different countries. Compare to the classical model, the two Swedish economists, Eli Heckscher and Bertil Ohlin created the neoclassical Heckscher-Ohlin (HO) factor endowment model in the early twentieth century. The HO theory assumes to take into account differences in factor supplies (land, labor, capital) on international specialization. The basis for trade arises not because of inherent technological differences in labor productivity for different goods between different countries, but because co (...truncated)