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The Great Recession and Developing Countries
2009, there were 11 years with growth rates above 7 percent, and 11 years with growth rates below 2 percent. Annual growth exceeded 9 percent during four years, but was negative during five. This cannot be a healthy pattern for any country, and even less so for a country with unstable politics. Of course, political instability must be a part of the problem. But questions naturally arise: Has Turkey’s policy mix exacerbated or dampened this volatility? Were the elements that generated the “excess volatility” purged during the reforms of the past decade, given that the volatility of GDP growth fell noticeably during the 2002–07 period? The main candidates for examination in trying to answer these questions are the policies and institutions that influence (a) public sector finances and (b) private financial sector behavior. The highly variable growth rate in Turkey is difficult to explain, but understanding it may well be the most important part of an inquiry into Turkey’s growth performance and prospects. The explanation will help Turkey decide whether its economic structure is inherently more volatile, whether the government has been adding policy risk to economic risk through its fiscal and financial policies, and what changes are needed for the government to ameliorate these fluctuations and create the conditions for steadier growth.
Unusual Savings Patterns The paper shows that Turkey’s saving rates have been much lower than suitable comparator countries such as the Republic of Korea, Malaysia, and Thailand. During the 1980s, the domestic saving rate in Turkey was 16 percent (about half of the East Asian high growers), and GDP growth averaged 4 percent, compared with between 6 and 8 percent for the three East Asian countries. During the 1990s, the saving rate increased to 20 percent, but remained more than 15 percentage points of GDP below those of Korea, Malaysia, and Thailand. Turkey’s annual GDP growth still averaged 4 percent, compared with 5 to 7 percent for the three East Asian economies. Between 2000 and 2007, the average saving-to-GDP ratio in Turkey inexplicably fell to 17.5 percent, even as the GDP growth rate increased to more than 5 percent, roughly the same as the growth rates in Korea, Malaysia, and Thailand.