ABSTRACT
Most of the countries in the Economic and Monetary Union (EMU) of the Europea Union (EU) experienced currency overvaluation and high production costs betwwen 2003 adn 2011, which increased their current account deficits. Despite not being an EMU member, Turkey's current account dificit increased in parallel with those of most EMU countries. Although Turkey experienced technological upgrades that changed low- and medium-tech industries into mediun- and high-tech industries, increasing exports relative to those of EU countries, it also expereinced a high trade deficit, the highest unit labor cost growth in export goods, an one of the most overvalued currencies. Its high production coast, overvalued currency, and industrialpolicies in he transport equipment industry following technological change combined with insufficient investment in the promotion of low- and medium-tech industries worssened Turkey's trade deficit in the 2000s. Thereofre, to increase its ability to compete with EU economies and reduce its trade deficit, Turkey must implement new instituonal changes to fix its wage rate growth to the productivity growth of export goods and design new policies in those industries where the trade deficid was stimulated.