Ideas, Policy Learning, and Political Economy of Reform in Macroeconomic Policies and Governance in Turkey

After experiencing the worst economic setback in history, Turkey’s macroeconomic fundamentals witnessed a dramatic turnaround. The existing literature attributes these changes to the late-late conversion to macroeconomic discipline under IMF surveillance and EU pre-accession conditionality. The processes of adoption of new policy ideas, however, are largely absent in these narratives. This paper analyses changes in macroeconomic policies in Turkey following the shift towards the ‘sound money, stable finances’ paradigm. It shows how the adoption of this paradigm, itself rooted in ‘new consensus macroeconomics’, was completed with the institutionalization of ‘inflation targeting’ and ‘fiscal rules’ governing monetary and fiscal policies respectively. In order to do so, the paper, first, provides an overview of the changing policy paradigms in macroeconomic policy and governance in Turkey during the 2000s. Second, it reviews the literature on the role of ideas in policymaking to identify testable hypotheses on ‘Bayesian’ and ‘constructivist’ models of policy learning. Third, it unpacks the process of paradigmatic shift through analyzing the interplay of these powerful ideas with dominant actors and domestic institutions. The paper relies on a review of primary sources including programming and legislative documents, and 26 qualitative interviews with key policymakers and representatives of big business, and a survey of print media. By identifying a set of conditions for policy reform and social mechanisms in the political economy of policy reform, the paper concludes by re-evaluating the relative merits of ‘Bayesian’ and ‘constructivist’ approaches in accounting for continuity and change in macroeconomic policy and governance.