The Kapali Carsi

Turkey’s Current Account Deficit and economic reform

It is very easy to see the lagging Turkish productivity I discussed in this week’s Hurriyet Daily News column, which was also posted here at the blog,  thanks to the excellent explanation by Murat Ucer of Global Source / Turkey Data Monitor. He also links the problem to the current account deficit, the country’s Achilles’ heel:

We have developed this large CAD simply because in this same period, the mismatch between our global purchasing power and global capabilities has grown. We measure the former by average Turk‟s real purchasing power in U.S. dollars. We measure latter by average Turk‟s productivity, i.e. constant-price GDP divided by the population.

Here is Murat’s argument in graphic form:

The dollar one is not real in my graph (I was, as always, too lazy), but it doesn’t change the story. Murat then goes on to draw his simple conclusions from this observation:

The challenge then becomes the following: Since we would not want to impoverish ourselves in U.S. dollars (red line in the exhibit) — in fact, we would want that to continue growing – we need to figure a way to enhance our productivity (blue line in the exhibit). Put differently, if we continue to do more of the same, i.e. push ahead with demand-driven growth without an adequate supply response, CAD problem can‟t improve. In fact, more likely than not, it probably continues to worsen.

That’s how Turkey’s current account deficit is related to the reform agenda.

BTW, if you speak Turkish, there are a couple of really useful links. First, Bahcesehir University’s think-tank BETAM, at a note published slightly over a year ago, evaluates Turkey’s PISA scores. There is also Ankara-based think-tank TEPAV director (and fellow HDN columnist) Guven Sak’s column on (lack of) English language skills, which I could not hyperlink in the column, as Hurriyet Daily News doesn’t allow non-English links. Finally, for those of you who don’t speak our beautiful language, Yapi Kredi Research looked at education a year or so ago at the aptly-titled research piece, La Mala Educacion, paying homage to one of my favorite directors, although definitely not my favorite work of his, I prefer Talk to her and All about my Mother, although I haven’t seen his latest. So I guess I am not the only one with cheesy movie reference titles in town:)… And there is of course the UNDP Human Development reports and the accompanying indices, where Turkey is ranked 92nd out of 187 countries for the overall index and 126 in terms of average year o education by 25 year-olds…

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