The Empirical Project: TURKEY

The Empirical Project: TURKEY

Introduction

Economic overview

Turkey's dynamic economy is a complex mix of modern industry and commerce along with a traditional agriculture sector that in 2004 still accounted for 34% of employment. It has a strong and rapidly growing private sector, yet the state still plays a major role in basic industry, banking, transport, and communication. It's most important industry and largest exporter is textiles and clothing, which is almost entirely in private hands. The economic situation in recent years has been marked by rapid growth coupled with partial success in implementing structural reform measures. Inflation declined to 8.4% in 2007, down from 99% in 1997, but the public sector fiscal deficit probably remained near 10% of GDP due in large part to interest payments which accounted for 40% of central government spending in 2003. The government enacted a new tax law and speeded up privatization in 1998 but made no progress on badly needed social security reform. Ankara is trying to increase trade with other countries in the region yet most of Turkey's trade is still with OECD countries. Despite the implementation in January 1996 of a Customs Union with the EU, foreign direct investment in the country remains low - about $1 billion annually. Results in 2002-04 improved, because of strong financial support from the IMF and tighter fiscal policy. (Burns, A. F., W.C. Mitchell, 2006)

Explanation

A major political and economic issue over the next decade is whether or not Turkey will become a member of the EU. But further economic and judicial reforms and prospective EU membership are expected to boost Foreign Direct Investment (FDI). Privatization sales are currently approaching $21 billion (2007). Turkey's economic freedom score is 63.8, making its economy the 67th freest in the 2010 Index. Its score is 2.2 points higher than last year, reflecting improved scores especially in investment freedom, freedom from corruption, and fiscal freedom. Turkey is ranked 31st out of 43 countries in the Europe region, and its overall score is higher than the world average. Turkey has undertaken a series of reforms and accelerated its economic restructuring. The economy has recorded annual growth of about 5 percent over the past five years. The state's involvement in the economy remains considerable, but the private sector has grown more vibrant, and its role in economic development is increasing. The business environment has become more streamlined and efficient, albeit at a slow pace. (Burns, A. F., W.C. Mitchell, 2006)

Turkey's overall economic freedom remains curtailed by lingering institutional weaknesses. Regulation and taxation, despite some improvements, remain burdensome and deter more dynamic entrepreneurial activity. The state still sets some prices and maintains state-owned enterprises. The labor market remains rigid. Property rights are usually enforced, but the judiciary is overburdened and slow. Corruption is perceived as significant. Turkey is a secular state at the crossroads of Europe and the Middle East. With a constitution adopted in 1982 after a military coup, it is now a successful multi-party ...