CONVERGENCE OF REGIONAL ECONOMIC CYCLES IN TURKEY

Dissimilar economic fluctuations and asymmetric shocks across the regions of a country might create severe policy distortions that, under these circumstances, aggregate policy interventions (such as taxation and interest rates), are likely to be sub‐optimal for at least a fraction of the regions. For instance, monetary policy can hardly satisfy the needs of all regions when some of the regions are experiencing a boom while others are in a recession phase. For these reasons, similarity of regional business cycles and their convergence are highly desirable from a policy viewpoint. The aim of this paper is, therefore, to provide empirical evidence and policy implications in that context. In particular, I analyze business cycle correlations across Turkish provinces and the tendency of these cycles to converge over the period of analysis between 1975–2000 and 2004–2008 (for Nomenclature of Territorial Units for Statistics [NUTS]‐2 regions). I find that regional business cycle asymmetries have tended to decrease in recent decades. This result, although it seems to provide evidence in favor of rising correlations, shows that the convergence process is rather slow and there still exist asymmetries across the regional business cycles.