in: The Dynamics of Growth in Emerging Economies: The Case of Turkey, Arzu Akkoyunlu Wigley,Selim Çağatay, Editor, Routledge, London/New York , London, pp.15-47, 2019
This chapter develops an overlapping generations general equilibrium model with endogenous technological progress, endogenous human capital accumulation, and endogenous fertility choice. A minimum distance problem calibrates model inputs using data for the years 1955, 1975, 1995, and 2015, and non-targeted moments show that the model economy successfully captures long-run dynamics of the Turkish economy. The calibrated model predicts a growth slowdown for the rest of the 21st century, and human capital accumulation becomes increasingly more important from 1975 to the future in explaining real GDP per capita growth. Among the set of counterfactuals that increase Turkey’s 2015 human capital to that of South Korea, changes in preference parameters imply largest growth and welfare effects. On the other hand, the counterfactual that boosts productivity of R&D yields larger gains than the one that weakens competition among innovative firms. Low lifetime returns to education and low productivity of R&D technology are among the pitfalls. Turkey’s low quality labour force that lacks certain cognitive skills implies a dark prospect of long-run economic growth.