Abstract Since 2003, productivity growth in Turkey has disappointed. We provide a new analysis of the issue, measuring labour productivity at the firm level. Previous accounts distinguish a period of rapid productivity growth before 2007–2008 from one of slower productivity growth thereafter. In contrast, we show that productivity growth in manufacturing was faster after 2007–2008 than before, while productivity in services declined through 2010, after which it stabilised. The slump in service‐sector productivity was compounded by a shift in employment towards activities with relatively low, slowly growing labour productivity such as construction, hospitality and business services. These trends were attributable to policy. Our findings thus upend the conventional picture of successful policy reform prior to the Global Financial Crisis followed by a period of regression.
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