A Discussion on Whether Turkish Economy is in Middle Income Trap or Not: A Perspective on Framework of the Exchange Rates Appreciation

Abstract

Since 2007 long staying in the middle income group or especially unable to state a higher category, has begun to be considered as middle-income trap (MIT). According to World Bank (WB) classification, in 1955, Turkey reached to lower-middle income countries category from low-income category and staying there about 50 years. In 2004 Turkey has been reached constantly to upper-middle income countries category. However, last three years’ low growth figures and reaching 20% of the US income per capita have created many discussions whether Turkey entered in MIT. Besides, in parallel the integration of Turkish Economy to the world economy and to be exposed financial flows because of the world expansionary policies may result to have excessive appreciation of the national currency and to seem overvalued than real level of GDP in dollars. In emerging artificial bloating in income per capita is a result of undervaluation on the exchange rate. Therefore, in this study; the correct exchange rate is calculated with using base year determined depending on current account deficit’s minimum valued year or years which is assumed correct value of the exchange rate. By using calculated exchange rate, examined new GDP per capita series shows that Turkish economy could not reach the threshold 10000-12000 dollars despite being included in upper-middle income group in the WB classification. Furthermore, according to other classifications which are investigating MIT, it is also reached that Turkey has been placed in MIT long time period due to exchange rate pressures in terms of Turkey reached upper middle income position.