Moreover, regions within a country are also more connected and have freer movement of labor and goods in comparison to the connectivity between states at the global level. In this respect, the drastic increase in Turkey’s connectivity over the last decade, might have had a positive impact on poverty convergence in the country.

Turkey is a regionally diverse country in terms of economic development, with poorer regions located mostly in the Eastern and Southeastern parts of the country. Regions are diverse in their production activities and have experienced varying degrees of economic growth. To understand the patterns of poverty reduction as well as regional poverty convergence, we analyze NUTS2 regional level data (Figure 18).<sup>5</sup> The literature has focused on regional determinants of poverty reduction from “patterns of growth” and “initial conditions”. The patterns of growth theory assumes that growth across sectors may influence poverty reduction and the poor differently than aggregate growth. For example, growth in labor intensive sectors will have more poverty reduction impacts than growth in capital intensive sectors (Loayza and Raddatz, 2010). Initial conditions such as education levels, demographic structure, migration patterns, and mortality rates are also important from a growth perspective. Between the paper’s period of analysis (2006 and 2013), poverty rates decline heterogeneously across regions. This paper follows the literature on patterns of growth to identify more precisely the channels of poverty dynamics between NUTS2 regions in Turkey.

Studies have shown that sector composition and labor intensity have an impact on the amount of regional poverty reduction at a global scale. The size of economic growth does matter, but its composition in terms of intensive use of unskilled labor is also important since, this channel of growth enables the poor to contribute to the production process (Loayza and Raddatz, 2010). At a sector level, growth in services has been found to be major contributors to poverty reduction in Brazil, Indonesia, and India (Ferreira, Leite, Ravallion, 2010; Suryahadi, Suryadarma, and Sumarto, 2009; Ravallion and Datt 1996 and 2002). Since agricultural jobs tend to be very labor intensive and is a common line of work for the poor, growth in this sector has also associated with poverty reduction in Indonesia and China (Suryahadi, Suryadarma, and Sumarto, 2009; Montalvo and Ravallion, 2010).

In the case of Turkey, regional poverty reduction is primarily explained, in GVA terms, by growth of agricultural sectors in the East.<sup>6</sup> The positive impact of agricultural growth in the East might be partially due to the shift towards agriculture during the financial crisis as jobs in the services and industrial sectors became scarcer as a result of the economic slowdown. Surprisingly, growth of value added of the services sector was not found to impact poverty reduction, even though construction and real estate have been high growth sectors. One reason for this may be due to the access of gross value added data, which is limited to 2006 to 2011. Moreover, GVA excludes subsidies, and the Turkish government gives substantial amounts of subsidies to the services and industrial sectors. When using employment levels as a primary determinant, employment growth in the services sector is found to contribute to poverty reduction in both the East and West during the period 2006 to 2013. In terms of the impact of services to poverty alleviation, the diverging trends between GVA and employment indicators relating to this sector is noteworthy. These difference may in fact be due to the previously explained data related issues; however, another possibility is the relatively higher level of wages in the services sector compared to low-skilled agricultural and industrial jobs. As a result of this discrepancy in wage levels, switching to the services sector (measured by employment) might have a poverty reducing effect, while increasing wage levels in services (captured in GVA) do not reduce poverty since services employees are already over the poverty line.

> 5 Turkey is divided into 12 NUTS1 and 26 NUTS2 regions. Each NUTS2 region, with the exception of Istanbul Ankara and Izmir which are NUTS2 regions on their own, consists of multiple provinces within Turkey. Since provinces are the main units of administration within the government structure, this paper’s results should be interpreted bearing in mind these different geographical classifications in terms of policy recommendations.

> 6 The East includes regions TRA1, TRA2, TRB1, and TRB2 NUTS2 regions.

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