Economic Research Forum (ERF)

Local winners and losers in Erdoğan’s Turkey

Throughout the 2000s, Turkey was portrayed as a model of social and economic success for other countries in the MENA region. Ahead of the country’s early presidential and parliamentary polls, this column reports research evidence on how the ruling Justice and Development Party has managed public resources and fostered local economic development since it took power in 2002. The government has played a substantial role in influencing local economic performance on a discretionary basis.

In a nutshell

The strong centralisation of public finances in Turkey offers national governments a chance to manage and target public resources.

Research evidence indicates that the incumbent government has picked local economic winners and losers depending on its levels of provincial electoral support.

Battleground provinces, where the electoral race is close, have experienced significantly faster per capita GDP and employment growth rates.

Turkey’s snap elections, which could potentially beef up the powers of President Recep Tayyip Erdoğan, come amid significant macroeconomic turmoil. In May, inflation climbed to more than 12% on an annual basis, while the Turkish lira has lost almost 20% of its value against the dollar and the euro since the start of the year.

International analysts, such as Moody’s, are also significantly reconsidering growth forecasts. In recent analysis, Acemoglu and Ucer (2017) point out how this macroeconomic deterioration follows an ominous slide in the quality of the country’s economic and political institutions.

As fears persist over the strength of Turkey’s economy, what can be said about how the ruling Justice and Development Party (AKP) has managed public resources and fostered local economic development since it came to power in 2002? New empirical analyses indicate that the AKP has systematically ‘picked’ local economic winners and losers, by strategically allocating public monies and resources to provinces for particular electoral reasons.

Turkey’s public finances are highly centralised. For example, in 2005, the share of tax revenue of local governments in total tax revenue amounted to just 7.6% – that is, nearly a quarter of the share in Spain, half of Mexico’s and one third of the average across OECD countries (Blöchliger and Rabesona, 2009).

This strong centralisation of public finances offers Turkey’s national governments a chance to manage and target public resources in an arbitrary way beyond principles of ‘good governance’ (Kalaycioğlu, 2001). The AKP has been no exception, with its skilful mastery over the use of the government purse to punish and reward voters. The party’s de facto control of the national parliament has only heightened the centre’s control over public finances.

In a recent study (Cammett et al, 2018), we explore the rising consolidation of power by the AKP through the lens of distributive politics, aiming to assess how the ruling party has deployed public monies towards distinct political ends. Our results indicate that the AKP has funnelled highly excludable goods to strongholds in order to retain core support while directing non-excludable goods to provinces where electoral races have been much closer.

In other words, AKP strongholds have been targeted with significantly higher amounts of government current expenditure, while provinces where vote shares for the AKP are below the party’s national average score have received more locally non-excludable, irreversible goods, such as infrastructure investment.

This preferential targeting of excludable and reversible goods, such as current expenditure as well as firm subsidies, to AKP strongholds is evidence of ‘portfolio diversification’ (Diaz-Cayeros et al, 2016), in which different budget lines are exploited for distinct strategic objectives.

More specifically, reliably pro-AKP districts have been targeted with significantly higher amounts of expenditure in the areas of education – the most important line of current expenditure, which accounts for more than 35% of the total – defence and, to a lesser extent, cultural and religious affairs.

Our results also point to higher public order and security spending in strongholds of the far right, notably of the ultra-nationalist Nationalist Movement Party (MHP), possibly with the goal of ‘winning the hearts and minds’ of voters who are ideologically close to the AKP, and who value order and security.

By contrast, even controlling for different levels of development and for a host of socio-economic indicators, provincial strongholds of the main opposition party – the Republican People’s Party (CHP) – have been the biggest losers, receiving the lowest amount of spending from the central government across the majority of budget sub-categories. For example, the difference between two hypothetical provinces where vote shares for the opposition party are highest/lowest is almost 20% lower than average for current expenditure, and 120% lower in the case of capital investment.

From a policy perspective, these findings suggest that some sectors have been less prone to discretionary spending and investment patterns along partisan lines and therefore may have functioned according to a more programmatic logic, giving rise to more equitable improvements in economic and social outcomes. Other sectors, however, have been subject to more partisan logic, with potentially more negative consequences for equitable and sustainable development.

Recent research provides evidence for these claims. Luca (2018) shows that Turkey’s incumbent government has picked local economic winners and losers depending on the levels of provincial electoral support for the incumbent party in national elections, and beyond considerations of equity and efficiency. In particular, all else equal, battleground provinces where the electoral race for the AKP has been closer have experienced significantly faster per capita GDP and employment growth rates.

This variation across provinces also appears to have substantively important effects on development: Luca’s analysis suggests that a hypothetical battleground province – that is, where the share of AKP votes is just below the national average – experienced faster per capita GDP growth by more than 1.5 percentage points and yearly employment growth rates that are almost five percentage points faster than districts with the lowest AKP vote share.

Focusing on credit and sectoral growth, Bircan and Saka (2018) analyse how metropolitan mayoral elections have influenced the distribution of credit by Turkey’s public banks and, in turn, the growth of the construction sector – which has been one of the main drivers of economic growth under AKP rule. The authors reach similar conclusions: the incumbent government has played a substantial role in influencing local economic performance on a discretionary basis.

Throughout the 2000s, Turkey was portrayed as a model of social and economic success for other countries in the Middle East and North Africa region. Yet the incumbent government and its economic development model face increasing criticism for arbitrary decision-making.

Increasing evidence suggests that discretionary policy-making has affected not only individual firms and business groups through the strategic deployment of public funds, taxation and regulation: it has also shaped the distinct trajectories of provincial economies across the country depending on their political orientations.

Further reading

Acemoglu, D, and M Ucer (2017) ‘Why Turkish Growth Ended’, The Forum.

Bircan, C, and O Saka (2018) ‘Political Lending Cycles and Real Outcomes: Evidence from Turkey’.

Blöchliger, H, and J Rabesona (2009) ‘The Fiscal Autonomy of Sub-central Governments’, OECD Working Papers on Fiscal Federalism No. 9.

Cammett, M, D Luca and E Sergenti (2018) ‘Unfair Play: The Politics of Turkey’s Central Government Spending under AKP Rule’.

Diaz-Cayeros, A, F Estevez and B Magaloni (2016) The Political Logic of Poverty Relief: Electoral Strategies and Social Policy in Mexico, Cambridge University Press.

Kalaycioğlu, E (2001) ‘’Turkish Democracy: Patronage versus Governance’, Turkish Studies 2(1): 54-70.

Luca, D (2018) ‘Picking Winners at the Ballotbox: Votes, Polarization, and Local Economic Growth in Turkey’.

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