Turkeys Place in the Global Economy: Assessing Turkeys Economy w/ G20 Countries and BRICS

ADNAN MENDERES UNIVERSITY

FACULTY OF ECONOMICS AND ADMINISTRATIVE SCIENCES

International Relations Department

THE PLACE OF THE TURKISH ECONOMY

IN THE WORLD ECONOMY

COURSE OF SEMINAR

Submitted by

Başak ÖZGE (163018064)

Hesna ÇÖLLÜ (163018062)

Aliye TEMEL (163018066)

Emre ÇİFTELERLİ (163018065)

This paper is submitted to Assoc. Prof. Dr. Murat ARMAN, Assoc. Prof. Dr. Bülent Sarper AĞIR, and Assoc. Prof. Dr. Barış GÜRSOY with the fulfillment of requirements for the course of Seminar

December, 2016

Aydin

Table of Contents

Abstract

Turkey is one of the newly industrialized countries according to International Monetary Fund (IMF) and some specialists of economics. In this article, the place of Turkish economy will be explained and showed in the world economy. Since 2008, Turkey is one of the Group of Twenty (G20) countries, so the comparison of Turkey’s economy with the G20 countries’ will give better analysis to see place of Turkey. The Turkish economy will be examined by four main criteria which are the important measurements of a country’s economy; Gross Domestic Product (GDP), Income Distribution, Price Stability, and Balance of Payments. In the context of GDP, it will be examined by three aspects; Nominal GDP, GDP growth rate, and GDP per capita. The four main criteria will be shown with graphics related with topics to reinforce the given information and for better understanding of the Turkish economy.

Keywords: Turkish economy, G20, BRICS, Gross Domestic Product, Income Inequality, Price Stability, Import, Export

1. INTRODUCTION

Economy is a human activity which formed by production, trade, distribution and consumption, import and export. It includes all kinds of activities to meet human needs. An economy is formed by the combination of technological evolution, history and social organization and major factors such as geography, natural resources, income and ecology.

Economic activities have significant contributions to the enrichment and poverty of a country. The greater the number of economic activities, the higher the income level of people. Per capita national income increases. Investments and employment increase. Unemployment is reduced and new employment areas are opened. Decrease in imports of the country increases exports. Tax revenues increase and the country gets richer. The Turkish economy is defined as the emerging market economy by the International Monetary Fund (IMF). Turkey is among the world’s newly industrialized countries.

Where is place of Turkey’s economy in the world; it has very wide scope. This can reduced as Turkey’s place among G20 countries and with adding comparison with BRICS countries. There are four important main criteria in the economic scale that can be used for examined Turkey’s economy which are GDP-Growth rate, Distribution of income, price stability and Balance of payments

Newly industrialized country (NIC), country whose national economy has transitioned from being primarily based in agriculture to being primarily based in goods-producing industries, such as manufacturing, construction, and mining, during the late 20th and early 21st centuries. An NIC also trades more with other countries and has a higher standard of living than developing countries. However, it has not yet reached the level of economic advancement of developed countries and regions such as the United States, Japan, and Western Europe.

Turkey is also one of the members of The Group of Twenty (20) .The Group of Twenty (G20) is an international forum that brings together the world’s leading industrialized and emerging economies. The group accounts for 85 per cent of world GDP and two-thirds of its population. These studies carried out on the G-20 platform are aimed at achieving stability in the global economy, ensuring sustainable growth, strengthening the financial system, implementing reforms and modernizing the international financial system.

2. GROSS DOMESTIC PRODUCT (GDP)

The gross domestic product (GDP) is one of the primary indicators used to measure the health of a country’s economy. It represents the total dollar value of all goods and services produced over a specific time period; you can think of it as the size of the economy. Usually, GDP is expressed as a comparison to the previous quarter or year. For example, if the year-to-year GDP is up 3%, this is thought to mean that the economy has grown by 3% over the last year.

GDP includes the consumption, government spending, investment, and net export; I mean the export minus import. All of them together constitute the gross domestic product of a country.

I’m going to compare the G20 countries in terms of their GDP by giving graphics to reinforce my research. I do not consider the European Union just because I compare the countries. The year of 2014 GDP values of G20 countries are available in Table 1, and 2015 data are cited in Table 2.

The 2014 graphic shows that The United States is in the first place with $ 17 trillion 348 billion, and China is in the second place with its $ 10 trillion 430 billion GDP. Turkey is in the 17th place with the 798 billion dollars.

In 2015, with $ 18 trillion 558 billion the U.S. is ranked first in this area. This country is followed by China ($ 11 trillion 383 billion), Japan ($ 4 trillion $ 412 billion) and Germany ($ 3 trillion 467 billion). Turkey, which has a GDP of $ 751 billion, is ranked 17th among G20 countries.

However, I also would like to signify that Turkey may be in the seventeenth place among the countries, but if we compare the amount of GDP of Turkey with the U.S. which is the top country in G20 in terms of GDP, United States is 24.7 times larger than Turkey. And also China is 15 times larger than Turkey. What I want to say is that Turkey may be in the 20 major economies in the world, but the amount of difference with the top country is huge.

When we look at the percentage of the three countries; The United States which is the largest economy in the world accounts for 24.5 percent of the global GDP. The world’s second largest economy, China accounts for 15 percent of the global GDP. The world’s 17th largest economy Turkey accounts for about 1 percent of the global GDP.

Table 1: GDP values of 2014, Current Prices (U.S. dollars), IMF World Economic Outlook, April 2016

Table 2: GDP values of 2015, Current Prices (U.S. dollars), IMF World Economic Outlook, April 2016

The GDP growth rate measures how fast the economy is growing. It does this by comparing one quarter of the country’s economic output (Gross Domestic Product) to the last.

The ranking of the G20 countries in terms of GDP Growth Rate is cited in the Table 3. The countries with the highest GDP growth are India with 7.5 % and China with 6.5 %. These countries followed by Indonesia with 4.9 percent. Turkey is ranked 4th with a growth rate of 3.8 percent.

Table 3: GDP Growth rate values of 2015, Constant Prices (Percent change), IMF World Economic Outlook, April 2016

Turkey has set a target to become one of the ten largest economies in the world by 2023, the centenary of the foundation of the Turkish Republic. Achieving this goal is unlikely according to the current growth. The 2023 growth aspirations are very optimistic.

Why? Let’s look at the projected GDP ranking 2030 in the table 4. China will increase its GDP and take place on the top in 2030. Also the position of United States will decrease to the second place. India will make a great progress, pass the Japan and come to the third place. And look at the Turkey, the amount of GDP will increase of course, but not too much, not enough to being one of the ten biggest economies in the world. Turkey will be still at 17th place in 2030.

Table 4: Projected GDP Ranking 2030, by Centre for Economics and Business Research (Cebr).

GDP per Capita is the best way to compare Gross Domestic Product between countries. That’s because some countries have an enormous economic output because they have so many people. To get a more accurate picture, it’s helpful to use GDP per capita. This divides Gross Domestic Product by the number of residents, and measures the country’s standard of living. Per capita GDP is a measure of the total output of a country that takes gross domestic product (GDP) and divides it by the number of people in the country. That makes it the best measurement of a country’s standard of living. It tells you how prosperous a country feels to each of its citizens.

Table 5 and Table 6: GDP per capita, current prices, IMF World Economic Outlook, April 2016

When we examine the graphics (Table5 and Table 6);

According to 2014 data in terms of GDP per capita, among the 19 countries, Australia is ranked first with 61 thousand dollars. The second one is the United States 54 thousand 360 dollars, 50 thousand 205 dollars in the Canada, and Turkey is ranked 14th with 10 thousand 381 dollars.

In 2015, among the 19 countries, United States is ranked first with 57 thousand 220 dollars. The second one Australia is 49 thousand 144 dollars, 42 thousand 105 dollars in the United Kingdom, and Turkey is ranked twelfth with 9 thousand 562 dollars. But, Even if Turkey go up two steps, its amount of GDP per capita decreased from 10 thousand to 9 thousand dollars.

In addition, when we look at the world ranking, Luxembourg is in the first place with 104 thousand 359 dollars, Switzerland is in the second place with 78 thousand 179 dollars, and we see Turkey in the sixty-fifth place with 9 thousand 562 dollars.

3. INCOME DISTRIBUTION

In Turkey Income Distribution and Poverty Analysis, income distribution and poverty between individuals and households are addressed. When the distribution of income among the individuals in Turkey is examined, it is seen that the richest 20 percent receive 46.6 percent of the total 100 units of income, while the poorest 20 percent receives 4.9 percent of the total 100 units of income. Turkey is the 31st country among the OECD member countries with the highest income gap between the richest 10 percent and the poorest 10 percent.

Table 7: OECD (2016), Income inequality (indicator)

The Gini coefficient measures the inequality among values of a frequency distribution (for example, levels of income). A Gini coefficient of zero expresses perfect equality, where all values are the same (for example, where everyone has the same income). A Gini coefficient of 1 (or 100%) expresses maximal inequality among values (e.g., for a large number of people, where only one person has all the income or consumption, and all others have none, the Gini coefficient will be very nearly one. When close to 1 it means; inequality levels are increasing. But when it close to 0 ; means that inequality levels are decreasing

Many institutions are also conducting research on international distribution of income distribution. According to OECD, one of these institutions, the latest statistics on income distribution and poverty; Chile, Mexico, Turkey, the United States and Israel are the countries with the highest income distribution inequality. Given the published Gini coefficients, Scandinavian regions such as Denmark, Sweden and Norway are the most favorable countries in terms of income distribution justice, as well as having many socio-economic indicators. In other words, Scandinavian countries are the closest to the Gini coefficient at 0.25 level, and therefore the place where injustice is least experienced. According to the statistics, the OECD average is 0.316. Turkey is the 32nd country in the distribution of income justice among the 34 OECD member countries with a Gini coefficient of 0.412. As the inequality in income distribution increases, poverty also increases. As a result; It can be said in the direction of international demonstrations that the income distribution in our country is in the last place in developed countries in terms of injustice, and in the world Turkey is in the middle order.

4. PRICE STABILITY

Thirdly, there will be the definition of price stability and the comparison of G20 countries in terms of their price stability. Also, the inflation rates of BRICs countries will be examined.

Price stability means the retention of the purchasing power of the national currency by maintaining low and stable rates of inflation over the medium-term (from 3 to 5 years) measured by the Consumer Price Index. Price stability does not literally mean unchanging prices; it means their moderate growth. High inflation erodes the value of incomes and savings of households, businesses, and the public sector, raises production costs, costs of loans and loan servicing, and leads to high interest rates due to uncertainty about the future price level.

Price stability is related with inflation. Inflation is the continuous and general increase in goods and services prices. Central Bank wants to keep inflation under the control and wants to mentation stability. Also inflation causes one person to receive less goods and services than the past with the money he has.

Inflation in developed countries; inflation was first applied in New Zealand in 1990. Other developed countries have implemented inflation targeting because the New Zealand was successful. These countries are Canada, England, Swedish, Finland and Spain. There are common futures of developed countries. Firstly, initial inflation is low. Also these countries have high exchange rate flexibility. And these countries have implementation of monetary policy reliability with inflation.

Inflation in developing countries, Chile used inflation targeting strategy in 1990 because developed countries are successful but developing countries are inadequate as technical and infrastructure. Also financial institutions are not power. Developing countries have high dollarization and monetary authority is low so it is difficult to realize the inflation target. There are common futures of developing countries. There is no effective tax system in developing countries. Also price stability is background. There is not money transfer mechanism or it is unstable.

Inflation Application of Turkey:

After 2001 crises Turkey decided its inflation target to implementation, but after crisis there was uncertainty about economic situation. So, Turkey wanted to implement this application incrementally. Between 2002 and 2005 Turkey applied an implicit inflation regime, at the same time Turkey wanted to establish a basis for moving to open inflation with this application. An open inflation regime was introduced in 2006. When Turkey realize this application it based on consumer price index.

I am going to compare the G20 countries in terms of their inflation rates and show you the place of Turkey among those countries. We see that the table x shows the inflation rate of the year of 2015, according to this information; Argentina has the highest inflation rate among the G20 countries. This country is followed by Turkey which has the second highest economy, Brazil, and Russia. Also we clearly see that Japan is the 20th country with the lowest inflation rate.

Table 8: Inflation values of 2015, average consumer prices (Percent change), IMF World Economic Outlook, April 2016

When we look at BRICs countries in the table x; we see that Turkey has the highest inflation rates with the 9.79 % among these countries.

Table 9: Inflation values of 2015, average consumer prices (Percent change), IMF World Economic Outlook, April 2016

In addition, when we look at the inflation rates of Turkey of the last decade; we can see that Turkey has high inflation rates over the years and has no price stability. The table x shows us the inflation rate of Turkey from 2006 to 2016.

Table x: Turkey Inflation rates, 2006-2016, tradingeconomics.com/turkey/inflation-cpi

5. IMPORTS AND EXPORTS OF TURKEY

In this part, I would like to give a brief overview of the developments in world trade in order to better understand and compare Turkey’s foreign trade. We can say that the period of 2015-2016 has been a year of loss for world trade. Because in 2015, world trade was 16 trillion dollars. That is, trade has not risen since 2010.