Turkey has been suffering from separatist terrorism and the political conflict it implies since the mid-1980s, both of which are believed to have a negative impact on economic welfare. This article investigates the economic costs of Kurdistan Workers’ Party (PKK) terrorism, particularly in the Eastern and Southeastern provinces of Turkey by invoking the synthetic control method. We create a synthetic control group that mimics the socioeconomic characteristics of the provinces exposed to terrorism before the PKK terrorism emerged in the mid-1980s. We then compare the real gross domestic product (GDP) of the synthetic provinces without terrorism to the actual provinces with terrorism for the period 1975 to 2001. Causal inference is carried out by comparing the real per capita GDP gap between the synthetic and actual provinces against the intensity of PKK terrorist activity. Extended over a period of fourteen years (1988 to 2001), we find that after the emergence of terrorism, the per capita real GDP in Eastern and Southeastern Anatolia declined by about 6.6 percent relative to a comparable synthetic Eastern and Southeastern Anatolia without terrorism.

New firm formation is an important determinant of regional development. Entrepreneurial decisions on location choice are affected by numerous factors. Given the importance of local regional characteristics, this study focuses on the dynamics behind the regional formation of new firms in Turkey using balanced panel data from 1997 to 2006. An initial set of analyses underline the ongoing persistence of the unequal distribution of new firms. Among various factors, results obtained from different panel models suggest the importance of local demand, provincial business cycles, human capital development, and financial availabilities to explain the regional differences of new firm formation in Turkey. These results, which are robust to the inclusion of spatial links, also confirm that the proposed channels are common for manufacturing, services, and trade-based production.

Regional disparity is one of the important characteristics of the Turkish economy. This study examines the impact of market potential on the regional differences in Turkey by investigating wages in the manufacturing industry for 1987 and 2000. Evidence suggests that market potential is an important determinant of inequality in Turkey. In addition, public–private decomposition reshapes the dispersion of wages supportive of rising heterogeneity in the private manufacturing industry. This increases the explanatory power of market potential, which is observed to be high in western Turkey and diminishes toward eastern Turkey. Our findings highlight that during the postliberalization era of the 1980s, Turkey's regional inequality concern transformed into a structural problem which can be explained by provincial market potential. Moreover, our results underline that the modern geography framework, which has been tested for developed economies, is able to elucidate the regional differences in a developing country suffering from persistent imbalances.

This paper examines the path of the regional inequalities in