Are We There Yet ? (2)

The Republic of Turkey has been a "developing" country from the day it established in 1923. Are getting closer to be a "developed" one?

Let's have a closer look at 1980-2006 period. The first graph compares the growth performance of the Turkish economy with the rest of the world:

Figure 1: Average Growth Rate


It is clear that after a brief period of "above-average" performance following the free market reforms in the early 80s, the Turkish economy fell into a "growth recession" through the 90s. Following the 2001 crisis, the economy has recovered considerably and experienced a 7.2% growth rate.

What is remarkable is that the acceleration in groth rate has been achieved despite the negative shocks in the terms of trade. In the early 80s, the export prices increased, on the average, 2.1% (per year) faster than import prices - which mean that by 1988, the export prices were, in cumulative terms, almost 20% higher as compared to import prices.

In the 2000s, on the other hand, due to rise in energy and commodity prices, the terms of trade have deteriorated (on the average) 1.3% per year. The cumulative change was 8% by 2006.

Asia and East Europe have suffered too, albeit less severe than Turkey. All other developing countries in Africa, Middle East, and South America have experienced a positive shock.

Figure 2: Average Change in Terms of Trade (negative numbers indicate a deterioration)


Figure 3: Average Change in Terms of Trade (negative numbers indicate a deterioration)


Therefore, it is not surprising to observe the deterioration in the current account balances of Turkey. Note that East Europe has also relied on foreign capital flows to finance its growth rate. Asia, on the other hand, has continued to increase its current account surplus thanks to rise in national savings:

Figure 4: Average Current Account Balances (negative numbers indicate current account deficits)


Figure 5: Average Savings Rate (percent of GDP)


What is important is that the Investment-growth ratio, which was peaked at the end of 90s, has declined recently and in par with other developing countries.

Figure 6: The ratio of Investment/GDP to Growth Rate (ten year moving average)