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This paper investigates Turkey’s economic growth performance in the light of Thirlwall’s Law (1979) for the period of 2003Q1-2015Q3. Initially, to strengthen its predictive power, the extended version of Thirlwall’s Law (1982) has been modified further by incorporating the Net Earnings of Services and Investments (NESI). The empirical results attained through the proposed modification of Thirlwall’s Law verify its predictive power. The evidence also shows that Turkey’s poor Balance of Payments (BOP) performance is still a leading constraint on real GDP growth which could not exceed its historical average in this period. In addition, there is a growing tendency of the economy to finance its external deficit and economic growth with capital inflows which cannot be sustained in the long-run. In other words, despite receiving a substantial volume of foreign capital and accumulating a sizeable amount of foreign debt, Turkey could not solve its chronic BOP problems with appropriate economic policies in this period. Lastly, these findings indicate the end of the last boom-bust cycle of 2003-2015.

The Chronic Balance of Payments Constraint on Economic Growth in Turkey