Engineering Economy: A New Paradigm for Escaping the Middle-Income Trap

2026-05-09

AI Summary

This study addresses the persistent challenge faced by middle-income countries in escaping the “middle-income trap,” arguing that prevailing policy paradigms are inherently limited. It proposes a novel “engineering economics” framework that conceptualizes the economy as a dynamic control system, integrating endogenous growth theory, institutional economics, catch-up theory, cybernetics, and Schumpeterian innovation. The framework comprises eleven interlocking policy pillars and employs a road-surface metaphor to depict global economic structure. Key macroeconomic instruments—interest rates (as energy gradients), fiscal policy (as energy flows), exchange rates (as balancing motors), and regulation (as adaptive suspension)—are reconceptualized through cybernetic analogies, emphasizing continuous calibration over static equilibrium. Applied to Turkey, the approach uncovers a structural bottleneck in corporate R&D demand, identifies seven strategic opportunity windows amid U.S.–China technological rivalry, and outlines a phased implementation roadmap.

Abstract

This paper introduces the concept of Engineering Economy as a new paradigm for understanding and managing macroeconomic policy in middle-income countries seeking to escape the middle-income trap. Drawing on Turkiye's post-2001 economic trajectory and South Korea's successful transition from a low-income to a high-income economy, the study argues that conventional frameworks whether the Washington Consensus's market liberalization prescriptions or the institutionalist critique alone are insufficient. Instead, it proposes treating the economy as a dynamic control system requiring continuous calibration rather than static equilibrium. The paper develops a road-surface metaphor (highway, side-road, off-road) to characterize different global economic regimes and presents eleven interconnected policy pillars spanning venture capital formation, regulatory sandboxes, technology-focused industrial policy, and human capital development. By synthesizing insights from endogenous growth theory (Romer), institutional economics (Acemoglu), the catching-up literature (Lee), cybernetic systems theory (Wiener), and Schumpeterian creative destruction, the framework reconceptualizes macroeconomic instruments through control-engineering analogies: interest rates as energy gradients, fiscal policy as energy flow, exchange rates as balance motors, and regulation as adaptive suspension. The analysis demonstrates that Turkiye's structural challenge is not merely institutional weakness but a systemic absence of R&D demand from its dominant enterprise structures, creating a vicious cycle that conventional reforms cannot break. Seven specific opportunity windows arising from US-China technological rivalry are identified, and a phased implementation roadmap is proposed.

Problem

• middle-income trap
• Engineering Economy
• macroeconomic policy
• R&D demand
• structural challenge

Innovation

• Engineering Economy
• Dynamic Control System
• Policy Calibration
• Technology-Driven Industrial Policy
• R&D Demand Gap