# **1. Introduction**

This paper analyzes the drivers of regional poverty reduction and poverty convergence in Turkey.<sup>1</sup> First, the paper discusses imputation techniques to estimate poverty at the NUTS2<sup>2</sup> sub-national level.<sup>3</sup> Regional poverty studies at the NUTS2 level of disaggregation have not been previously available in Turkey since accessible surveys do not have sufficient regional identifiers. The study finds that Turkey has been able to reduce poverty over the last decade, but the progress has been spatially uneven. The paper moves on to estimate poverty convergence across regions. Over the recent period of 2006 to 2013, Turkey has experienced some poverty convergence in terms of its population living under the poverty line, but there is no parallel trend at the regional level. The convergence has also been uneven and inconsistent over time. Moreover, economic mobility has been divergent across the country, with higher levels of churning in the East and Southeast regions of the country. The analysis shows that people living in these regions are also subject to a higher rate of chronic poverty than the rest of the country. Lastly, the paper explores determinants of regional poverty reduction. The primary economic drivers of poverty reduction are the growth of employment in the services sector, and agriculture GVA growth in the East.<sup>4</sup> From a fiscal standpoint, central government spending is correlated with poverty reduction, but more so for the Western regions There has been consistent poverty reduction (consumption based) in Turkey since the early 2000s. Remarkably, 89 percent of this decline has been driven by growth (Azevedo and Atamanov, 2014). The bottom 40 has also benefitted from growth, and the proportion of the middle-class increased by 20 percentage points. At the household level, poverty reduction has been primarily driven by labor markets, demographics, pensions, and social assistance.

This paper, which uses imputed income based poverty for its analysis, shows that there has been large amounts of poverty reduction in Turkey. Furthermore, the process of poverty alleviation has been uneven across regions. In particular, the central and southern parts of the country (Mediterranean, Anatolian Tigers and Southeastern regions) were significantly more successful in poverty reduction than the Eastern mountainous areas. Poor regions in the East have not succeeded in reducing poverty at a similar rate to the West. In fact, poverty has increased in certain parts of Eastern Turkey. Over time, there are also differences in the speed of convergence, with stronger poverty convergence before and during the financial crisis in comparison to the aftermath. Differences in the speed of poverty reduction is also seen in other countries. For example in China, provinces with higher initial inequality experienced slower speeds of poverty reduction through lower growth and a lower growth-poverty elasticity (Ravallion and Chen, 2007). Yet, the presence of poverty convergence itself in some form is still laudable since poverty convergence has generally not been observed at the cross-country level (Ravallion, 2012). Poverty convergence alongside overall poverty reduction is not trivial. Therefore, Turkey’s experience is unique and serves as an example for understanding why poverty has fallen even when growth has not been shared in the aftermath of the financial crisis.

There are multiple reasons for the presence of sub-national poverty convergence despite the absence of convergence at a global level. One reason is the ability of a national government to coordinate and distribute funds in a targeted manner. A national government will be more familiar with regions that are falling behind or are self-sufficient. For example, in the case of Brazil, social spending has been found to be a primary channel for poverty reduction in the absence of growth (Ferrieira, Leite, and Ravallion, 2010). However, while targeted schemes can alleviate poverty in certain country cases, fiscal targeting may only lead to small poverty alleviation impacts if there are political constraints (Baker and Grosh, 1994; Ravallion, 1993).

> 1 Primarily at the NUTS2 level, and between 2006 and 2013 but varies based on data availability

> 2 The Nomenclature of Territorial Units for Statistics

> 3 Geographic identifiers and data to measure welfare aggregates are not found in the same data set. Data challenges are discussed further in Section 2.

> 4 In this paper, the East is defined as TRA1, TRA2, TRB1 and TRB2. The West is defined as the rest of the country.

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