Turkey’s manufacturing sector has grown considerably since 1950, but in the early 1990s farming still engaged nearly half the labor force. The government has a great deal of influence over the Turkish economy and owns several important industries. In the mid-1990s the economy was beset by a growing budget deficit and an annual rate of inflation as high as 150 percent. In response, the government initiated austerity measures that included accelerating the pace of a privatization program and increasing the price of goods produced or sold by government enterprises.

Turkey has operated a mixed economy, in which both state and private enterprise have contributed to economic development. The economy has been transformed from a predominantly agricultural one to one in which industry and services are the most productive and rapidly expanding sectors. Until about 1950 the state played the leading role in industrialization, providing most of the capital for structural improvement in railways, ports, and shipping facilities and for the establishment of such basic industries as mining, metallurgy, and chemicals; it also invested in manufacturing, notably in the food-processing, textile, and building-material sectors. Emerging industries were protected by tariff barriers, and foreign investment was discouraged; the economy remained self-contained and somewhat isolated, with foreign trade playing only a minor role.

Turkey's dynamic economy is a complex mix of modern industry and commerce along with traditional agriculture that still accounts for nearly 40% of employment. It has a strong and rapidly growing private sector, yet the state still plays a major role in basic industry, banking, transport, and communication. The most important industry - and largest exporter - is textiles and clothing, which is almost entirely in private hands. In recent years the economic situation has been marked by erratic economic growth and serious imbalances. Real GNP growth has exceeded 6% in most years, but this strong expansion was interrupted by sharp declines in output in 1994 and 1999. Meanwhile the public sector fiscal deficit has regularly exceeded 10% of GDP - due in large part to the huge burden of interest payments, which now account for more than 40% of central government spending - while inflation has remained in the high double digit range. Perhaps because of these problems, foreign direct investment in Turkey remains low - less than $1 billion annually. Prospects for the future are improving, however, because the ECEVIT government since June 1999 has been implementing an IMF-backed reform program, including a tighter budget, social security reform, banking reorganization, and accelerated privatization. As a result, the fiscal situation is greatly improved and inflation has dropped below 40% - the lowest rate since 1987. The country experienced a financial crisis in late 2000, including sharp drops in the stock market and foreign exchange reserves, but is recovering rapidly, thanks to additional IMF support and the government's commitment to a specific timetable of economic reforms.