The response of private investment to structural adjustment-a case study of Turkey

Much concern has been expressed about the apparently adverse response of private investment to structural adjustment and other economic reform programmes, even in countries where these reforms appear to have been fairly successful according to other criteria. This issue is examined for the case of Turkey, where private investment dipped significantly following the launch of the economic reform programme. Particular attention is paid to the financial sector reforms in that programme. While the high interest rates which were associated with financial liberalization did discourage investment, this effect appears to have been temporary, and financial liberalisation had the beneficial long-term effect of relaxing credit constraints on investment, which had been an important feature of the pre-reform era.