TERM PAPER

DEVELOPMENT ECONOMICS
ECON-2303
TURKEY’S ECONOMIC HISTORY EXPLAINED WITH DEVELOPMENT GROWTH
MODELS, COMPARISON OF HDI’S BETWEEN GEORGIA AND EQUATORIAL
GUINEA AND WHY KUZNETS INVERTED-U HYPOTHESIS DIDN’T WORK AT
MALAYASIA DURING IT’S EARLLY STAGES OF ECONOMIC GROWTH

Submitted To: Submitted By:

NAHIN RAHMAN Mayaz Al Mahin
ASISSTANT PROFESSOR ID:2114881042
Department of Economics, BUP Session:2020-2021
 Abstract
This term paper examines diverse economic development models and real-world applications in
the context of Turkey's economic evolution, leveraging Lewis, Harrod-Domar, and Lewis
models. The subsequent section scrutinizes the disparities in Human Development Index (HDI)
between Georgia and Equatorial Guinea, despite their similar per capita Gross National Income
(GNI). Additionally, it investigates the unaligned trajectory of Malaysia's economic development
concerning the Kuznets Curve hypothesis. The paper navigates through Turkey's transformation
utilizing economic models, the intriguing contrasts in HDI outcomes between these countries,
and the complexities that diverged Malaysia's development from the anticipated Kuznets Curve
pattern. These discussions provide nuanced insights into the multifaceted nature of economic
development and the limitations of predictive models in real-world scenarios.
The Development of Turkey
Turkey is a founding member of the OECD and G20, and is classified among the E7 countries,
EAGLEs and NICs. As of 2023, Turkey's economy is the 17th-largest in the world, and 7th-
largest in Europe by nominal GDP. It is also the 11th-largest in the world, and 5th-largest in
Europe by PPP. According to the IMF, Turkey has an upper-middle income, mixed-market,
emerging economy. The country is the fourth most visited destination in the world, and has over
1,500 R&D centers established both by multinational and national firms. Turkey is among the
world's leading producers of agricultural products, textiles, motor vehicles, transportation
equipment, construction materials, consumer electronics, and home appliances.

Turkey’s economic development stages by applying Rostow’s model:

Traditional Society: When Turkey became a republic in 1923, it was primarily an agrarian
society with a small amount of industry. It sought to move away from customs centered around
agriculture.
Prerequisites for Takeoff: Turkey began economic reforms and industrialization in the 1960s,
moving away from its agricultural roots. Import Substitution Industrialization strategies aimed at
establishing indigenous manufacturing defined this era.
Take-off: Following economic liberalization and market-oriented policies that moved away from
protectionism and toward free markets, this stage experienced tremendous industrial growth in
the 1980s and 1990s.
Drive to Maturity: Turkey's economy grew further, its technology advanced, and its integration
into the world economy deepened. The goal of this phase was to consolidate the advantages from
the take-off phase.
Age of High Mass Consumption: Turkey was on the verge of but had not yet attained this stage,
which is marked by pervasive wealth, a sophisticated consumer economy, and a high standard of
life.

Explaining Turkey’s Economic Development by Harrod-Domar Model

Formula: Growth Rate of Real GDP=Capital-Output Ratio/Savings Ratio
The relationship between an economy's savings rate and capital-output ratio establishes its
growth rate, which is expressed in terms of changes in real GDP. It implies that in order for a
country to reach the targeted growth rate, it must either reduce the capital-output ratio—a
measure of how much capital is required to produce one unit of output—or increase savings in
proportion to output. Higher sustained growth can be achieved by an economy through
increasing savings or increasing the efficiency with which capital is used. The significance of
investment and efficiency in promoting economic growth is highlighted by the Harrod-Domar
model.
Savings Ratio: Following the Republic's founding in 1923, Turkey's early economic history
involved attempts to move from an agrarian-based to an industrialized economy. The savings
ratio fluctuated over this time as the nation worked to establish its economic base. The nation
experienced variations in its savings rates, impacted by both internal and international economic
circumstances. Turkey adopted import substitution policies in the 1960s and 1970s to encourage
domestic manufacturing. This had an impact on the savings rate since resources were allocated to
the growth of indigenous industries.
Capital-Output Ratio: Over the course of Turkey's economic development, the country's
capital-output ratio changed considerably. Turkey had comparatively high capital-output ratios in
the beginning because of its focus on developing infrastructure and building sectors. Capital
productivity and efficiency increased with time, particularly following the liberalization
measures of the 1980s. As a result of increased economic openness, new technology adoption
and foreign investment, the capital-output ratio improved.
It is clear that the Harrod-Domar model has been applied throughout Turkey's economic history.
Through controlling the dynamics of savings and investment, the nation sought to accelerate
economic growth. According to the concept, continuous economic growth can only be attained
by increased savings rates, which in turn allows for larger levels of investment. As a result, these
investments have an impact on the capital-output ratio, which is important for sustaining or
boosting economic growth.

Economy of Turkey applying Lewis Model:

Turkey's economic history is similar to Arthur Lewis' Lewis Dual Sector Model in that it shows a
shift from an agrarian society to one that is more diversified. Following 1923, Turkey's economy
was mostly based on agriculture. The bulk of people were still practicing traditional agriculture,
which was poor productivity and had little technical developments. But Turkey started a path
toward industrialization and economic diversification in the 1960s.
Lewis' model, which predicted a move from the agricultural sector to a contemporary industrial
sector, was essentially replicated in this transformation. Turkey's economic policies were
designed to absorb excess manpower from agriculture and promote industrial growth. The
modern industrial sector was aided in its foundation and growth by state-led initiatives and
reforms. Consequently, labor started to move from the traditional agricultural sector to the newly
emerging industrial sectors, which was a key factor in the nation's urbanization.
Turkey's industrialization process was fraught with difficulties and complications. Structural
problems, world economic volatility, political instability, and inefficiencies in industrial
development surfaced despite successful modernization initiatives. These elements diverged
from the Lewis Model's ideal transition.
Turkey is currently facing a number of economic difficulties, such as rising inflation,
depreciating currency, geopolitical unrest, and structural flaws in its industry. While attempting
to maintain focus on improving the industrial sector, technical improvements, and economic
diversification for long-term and sustainable growth, the economy is negotiating these obstacles.

Comparison of HDI between Georgia And Equatorial Guinea

Current HDI of Georgia is .802 and HDI of Equatorial Guinea is .596. The current per capita
GNI of Georgia is 5,620 dollar and per capita of Equatorial Guinea is 5,320 dollar. Both Georgia
and Equatorial Guinea are upper-middle income country and close to each other. But we can see
huge difference in their HDI ranking. Even many lower-middle income countries have more HDI
point than Equatorial New Guinea.
Georgia's relatively good HDI performance is supported by a number of important factors.
Significant economic reforms were implemented when the nation separated from the Soviet
Union. Market-oriented policies were promoted by these reforms, which also attracted foreign
investment and private enterprise. Its diversification across several economic sectors raised the
standard of living for its people and resulted in significant economic growth.
Furthermore, compared to Equatorial Guinea, Georgia has seen a very stable political climate
and governmental framework. A more stable atmosphere that is favorable to both economic
progress and human development has been produced by initiatives to lessen corruption,
strengthen democratic institutions, and improve governance.
Georgia has also placed a strong emphasis on funding healthcare and education. The nation has
improved life expectancy, increased life expectancy rates, and improved literacy rates by putting
a high priority on building its healthcare and education facilities. These developments have all
helped the nation's HDI.
Equatorial Guinea, on the other hand, has struggled to convert its abundant natural resources into
better human development, even though it possesses large oil reserves. The nation's over-reliance
on oil exports hasn't resulted in more widespread economic growth. Human development
indicators have not advanced as a result of unequal wealth distribution, low investment in
infrastructure and social services, and problems with governance and high levels of corruption.
Equatorial Guinea also has a high level of socioeconomic disparity. The lack of equal
distribution among the people, in spite of the wealth created by oil profits, results in differences
in living standards and restricted access to essential services, which have a detrimental effect on
the nation's HDI performance.
The difference in Equatorial Guinea's and Georgia's HDI scores highlights how important it is
for governments, economies to be diversified, and social sector investments to have a significant
impact on a country's human development outcomes. Georgia outperformed Equatorial Guinea
in the HDI thanks to its stable political institutions, emphasis on social development, and
comparatively more diversified economy.

Malaysia’s Economic Development and Why it didn’t follow Kuznet’s

Inverted-U Hypothesis
From its beginnings as an East Asian Miracle (EAM), Malaysia's economic transformation did
not entirely follow Kuznets' Inverted U Hypothesis, which postulates that income inequality rises
during industrialization's early phases but eventually falls once a certain degree of economic
development is reached. Due to a complex web of interrelated events, including policy decisions,
fast industrialization, aggressive interventions, and social changes, Malaysia's experience
departed from this notion. Malaysia also put in place a number of important measures to reduce
income disparity.
The Kuznets Curve, developed by economist Simon Kuznets, suggests that income inequality
increases during early economic development, shifting from agrarian-based economies to
industrialization, but decreases as per capita income grows due to education improvements and
social policies.
Malaysia experienced rapid industrialization and economic growth in the 1970s, driven by
export-oriented policies and the New Economic Policy, aiming to eradicate poverty and
eliminate race-based economic disparities.
In terms of reducing income inequality, Malaysia's policies have included:
Programs for Affirmative Action: The NEP established policies for affirmative action, which
included giving opportunities and transferring wealth to the indigenous Bumiputera community.
This was done in an effort to lessen differences between ethnic groups—Malays and non-Malays
in particular.
Education and Skill Development: To ensure greater access to high-quality education, Malaysia
placed a strong emphasis on education and skill development. The goal of investing in human
capital was to close the achievement gap and provide workers the skills they need to compete in
the expanding economy.
Industrialization and Economic Diversification: Concentrated efforts to industrialize and
diversify the economy produced job possibilities, which raised income and decreased inequality.
Redistribution programs: These include land reform laws, social assistance programs, and
projects aimed at bridging the gap in income between rural and urban residents.
Labor Market Reforms: Reducing economic disparity was made possible by policies that
supported equitable pay, better working conditions, and employee rights.
Malaysia's development trajectory did not align with the Kuznets Curve, as income inequality
remained high despite economic growth and poverty reduction. Challenges included unequal
wealth distribution, policy inefficiencies, and regional development imbalances. Malaysia is now
grappling with rising income inequality, structural issues, and ethnic representation issues. The
government is reassessing policies to address these issues, focusing on inclusive growth, social
safety nets, and equitable economic opportunities.
Malaysia's economic policies, social initiatives, and structural factors have contributed to and
impeded income inequality reduction, deviating from the Kuznets Curve's ideal pattern.
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