# **Introduction**

1. **Turkey is classified as an upper middle income country, and has a Gross National Income per capita of $18,190 USD PPP (2012)** . With a Gross Domestic Product of 789 billion USD (2012), it is the 17<sup>th</sup> largest economy in the world.  Turkey is a member of the Organization for Economic Development and Cooperation (OECD) and an EU accession candidate country. After a volatile period in the 1990s and the economic crisis in 2001, Turkey’s economy demonstrated steady growth and modest inflation. Since the global economic crisis, Turkey has recorded among the strongest recoveries in the ECA region, even though growth has recently slowed significantly as concerns over external imbalances have intensified.

2. **High economic growth translated into remarkably consistent poverty reduction.** Between 2002 and 2011, extreme poverty fell from 13% to 5% while moderate poverty fell from 44% to 22% (respectively defined using the World Bank’s Europe and Central Asia regional poverty lines of 2.5 and 5 USD/PPP).<sup>1</sup> This systematic increase in welfare led to a significant increase of the middle class in Turkey during 2002-2011.

3. **Turkey’s economic performance and social gains have attracted a lot of attention from other countries, in particular countries in the Middle East and North Africa.** This raises demand for analytical work explaining the factors behind this success story. There are several important works published on the labor market and jobs, public finance, saving and economic growth in Turkey (Grun et al, 2013; World Bank, 2010, World Bank, 2011; World Bank, 2013a; World Bank, forthcoming), but analytical studies about poverty reduction, shared prosperity and intra-generational mobility are rather limited. There was a comprehensive poverty assessment conducted by the World Bank (2005) and a study on how the economic crisis affected the welfare of families in Turkey by the World Bank (2013a). There is a study by Şeker and Dayıoğlu (2014) which looks at mobility in and out of poverty during 2005-2008. Şeker and Jenkins (2013) analyzed poverty trends in Turkey during 2003-2011 and decomposed the changes into growth and redistribution components. Nevertheless, to the best of our knowledge, there are no comprehensive studies of the main drivers of poverty reduction, shared prosperity and inequality in Turkey during the last decade.

4. **This paper contributes to filling this knowledge gap and presents stylized facts on poverty reduction, shared prosperity and intra-generational mobility in Turkey from 2002 to 2011** . Using different econometric and statistical techniques, the drivers behind these changes are quantified in order to identify which factors were responsible for poverty reduction and intra-generational mobility during this period. Some of the mechanisms behind the main drivers of poverty reduction are also explored in this paper.

5. **The paper is structured as follows:** (i) explanation of the interrelationships between growth, poverty and shared prosperity; (ii) stylized facts about intra-generational class mobility; (iii) exploration

> 1 This trend is also consistent with national official poverty reduction statistics produced by the Turkish Statistical Institute (TUIK) and published on their website although TUIK uses a different welfare aggregate and hence the level of underlying trends is not the same.

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