One barrier to EU accession may be Turkey’s failure to achieve stable economic growth. In Turkey, as elsewhere, GDP growth depends heavily on the rate of productivity increase, and our studies of 11 sectors of the economy shows that it is performing at only a little more than half of its potential productivity level. If Turkey took measures to realize its full productivity potential, it could create six million additional jobs by 2015 and achieve annual GDP growth as high as 8.5 percent.Compared with many other developing countries, which face dozens of barriers to productivity, Turkey is in a promising position. Thanks to economic reforms set in motion in the 1980s and to a customs union agreement with the EU in the mid-1990s, many barriers to productivity evident in other countries we have studied don’t exist in Turkey. Turkey’s level of foreign direct investment is lower than that in many other developing markets but not, we believe, because of regulatory. Turkey’s productivity suffers from three specific problems: a large informal economy, macroeconomic and political instability, and government ownership. These are major issues, and tackling them will take sustained resolve, but at least Turkey has the comparative luxury of being able to focus on a limited number of areas for reform, and the fruits of doing so are potentially substantial.
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