An Assessment on the Risk of Falling to the Lower-Middle Income Group Beyond the Middle Income Trap

Abstract

The Turkish economy succeeded in moving from the lower-middle income group to the upper-middle income group in 2005. If Türkiye had been able to sustain its growth performance in 2005 and the following 5-10 years, it could have risen to the class of high-income countries in a not too long period of time. However, it has experienced declines in dollar-denominated income in response to real growth between 2014 and 2020. In this process, a literature began to emerge about Türkiye falling into the middle-income trap. At this point, Türkiye, which had the possibility of rising to the high-income country group in 2013 but declined to the median income in the upper-middle income group as of 2020, seems worth examining with its experiences. In this study, the descriptive analyzes implies that the risk that Türkiye will fall to the lower-middle income level in 2027, if the continuous decline trend in dollar-based income figures in the post-2013 period continues. It can be said that the de-dollarization effects in exchange rates, as a reflection of the improvement in institutional structures and the foreign capital inflows triggered by this, played an important role in the great leap observed in Türkiye’s dollar-based income before 2013. Given the continuous decline in dollar-based income after 2013, it is noted that the deterioration in institutional structures and the dollarization effects in exchange rates are significant.