Innovation Amidst Instability: Turkey’s Defense Industry, High Inflation, and the Challenge to Development Economics - A Literature Review

Abstract

This study looks into how Turkey kept the growth of innovation and high-tech exports in the defense sector going even when the economy was unstable and inflation was high. The study by Hausmann and Rodrik (2003) in the field of development economics shows that emerging economies often have trouble keeping up with high-tech exports when their economies are in trouble. Industrial progress is often slowed by economic crises. Even though inflation went up from 20.3% to 44.4% from 2018 to 2024, Turkey's defense exports and innovation grew. When compared with countries like Argentina, Zimbabwe, and Peru—where inflation damaged industrial capacity—Turkey’s experience stands out as different. The results show that Turkey’s mix of state support, strong defense-industrial policy, and geopolitical demand helped the sector stay strong despite economic problems. This research adds to the discussion about industrial policy and economic diversification in developing countries and questions the common belief that high-tech exports cannot grow during crises.