The Tractor Industry in the Turkish Economy: An Endogenous Growth Analysis in the Context of Monetary and Fiscal Policy Coordination

This study investigates the asymmetric effects of coordination between monetary and fiscal policies on agricultural productivity in the Turkish economy, focusing on the tractor industry as a core component of agricultural capital formation. While monetary policy primarily affects the quantity of tractors through interest rate channels, fiscal policy determines the technological quality of this capital through R&D incentives and technology-oriented subsidies. The central argument of the study is that increases in tractor demand driven solely by lower financing costs lead to quantitative capital accumulation without productivity gains unless accompanied by technologically selective fiscal support. To test this hypothesis, an endogenous growth framework incorporating technological risk and qualitative – quantitative capital complementarity is developed. The model highlights how insufficient policy coordination causes farmers to favour low-technology tractors as a “safe haven,” even under expansionary monetary conditions, thereby generating structural X-inefficiency and a persistent productivity trap. The findings demonstrate that agricultural modernisation cannot be achieved through credit expansion alone and that the accumulation of technologically advanced capital is essential for sustaining total factor productivity growth. The study concludes that effective coordination between monetary and fiscal policies is a necessary condition for avoiding low-productivity equilibria in agriculture. Policies focused exclusively on financing costs risk reinforcing inefficient capital structures, whereas coordinated policy design enables technological deepening, risk mitigation, and long-term productivity gains in the agricultural sector.