Technological change, human capital, and absorptive capacity: Can Turkey escape the Middle Income Trap?

Abstract

In this study, we build an endogenous growth model around the idea that in order to escape the Middle Income Trap (MIT) and catch-up with the rich economies, a country in the MIT (like Turkey) needs to experience technological change at a rate faster than that of the world frontier technological progress, and to realize convergence, she must increase technological absorptive capacity. We show that by increasing the years of schooling, educational quality, and the share of capital goods imports in GDP, not only the level of technology will improve, but also the rate of technological progress and labor productivity growth will improve, making it possible for Turkey to eventually escape the trap. Moreover, increasing the share of researchers in overall educated population helps to avoid the trap by decreasing the threshold to start the catch-up process, and increasing the domestic technology level relative to the world frontier.