I discuss first the changes in the political economy of Turkey and the international setting that Turkey faces, analysing how and why regionalism became an option. Turkey is part of the ‘weak’ semi-periphery in the world economy. Even though the manufacturing industry has grown rapidly over the last fifteen years and accounts for 25 per cent of GDP, more than 40 per cent of the working population is still employed in the agricultural sector, which only accounts for 15 per cent of the total GDP. While the Turkish textile industry has become sufficiently competitive in world markets to provoke anti-dumping measures by both the EU and the US, most other industries are inefficient in terms of productivity, labour and capital investment. Despite significant trade liberalization and economic reforms since the 1980s, export growth has not been accompanied by the industrialization that occurred in the East Asian countries. Furthermore, the amount of foreign direct investment (FDI) Turkey attracts has remained limited. Although the combination of cheap labour as a result of the wage freezes after the military coup of 1980 and the size of the domestic market worked to draw in some investors, FDI expansion has been constrained by the rise of real wages in the early 1990s and the macroeconomic instabilities of that time. FDI increased eight-fold in the 1980s, but the emergence of cheaper labour sources in Eastern Europe and China, coupled with the political uncertainties associated with the rise of Islamic fundamentalism in Turkey, led to a fall in foreign investment. Hence Turkey remains a developing country. Its GDP is less than the total corporate sales of General Motors. It ranks seventy-fourth in the world in terms of human development indicators and has serious income distribution

disparities between rural and urban areas (United Nations Development Programme 1997). Most industrial activity takes place in the west, north-west and the south, while the eastern and south-eastern parts of the country have experienced very limited economic growth.