NON-LINEAR REGIONAL INCOME DIVERGENCE AND POLICIES: TURKEY CASE

Hasan Engin DURAN

Izmir Institute of Technology, City and Regional Planning Department,Assistant Professor of Economics, Gülbahce Kampüsü, Izmir Yüksek Teknoloji Ensitüsü, Mimarlık Fakültesi, Şehir ve bölge Planlama Bölümü, Urla-Izmir,  Tel: +90 506 845 59 83
enginduran@iyte.edu.tr

Abstract

The literature on economic convergence is strongly influenced by Neo-Classical Growth model. It describes a monotone saddle path along which each economy converges towards a unique steady state. Commonly employed method in convergence analysis is the linear cross-sectional regressions which links the annual growth rate of regions to their initial income level. Ignoring the non-linearities is important from a policy perspective that implications obtained from a linear regression can be very different to the policies learned from a non-linear case. Aim of the present study is to analyze regional income convergence in Turkey by using nonparametric convergence regressions. We implement our study for 67 provinces and a period 1975-2000. We find that the relationship between initial income and growth takes a  inverted-U shape which means that the very low-income and high-income group of provinces experince a slow growth pattern compared to middle-income group. This has several implications for regional economic policies. First, middle-income provinces are able to stimulate their economies and fulfill their potential for convergence by market forces. Second, however, the very low-income provinces need a substantial help and assistance.It, therefore,  becomes a natural necessity to direct policy instruments such as subsidies, direct and indirect income transfers, tax exemptions and other resources  to these areas. In this way, nonparametric estimations provide a very useful guide to the way how the resources should be allocated across provinces.

Keywords: Convergence, nonparametric regressions, Regional Policies

JEL classification: R11, R12
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