Wage or Profit-Led Growth? The Case of Turkey

Abstract

I aim at contributing to the academic debate about the relationship between functional income distribution and economic growth in regard to the large and open economy of Turkey in the period from 1987 to 2006. To this end, I propose a simple post-Keynesian model, so as to test whether the Turkish economy is wage or profit-led. I find evidence that, while a rising wage has a positive effect on investment, it does not affect consumption in Turkey. Hence the combined effect of a rising wage share on domestic demand (investment plus consumption) is positive. However, since exports and imports are so sensitive to labor costs, as they are in the case of Turkey, the regime becomes profit-led.