The Great Recession and Developing Countries
however, the pace of reforms has slowed, partly due to unresolved issues in the EU accession process, partly as a result of the global crisis, and also partly as a reflection of internal political conditions. Demand and Production Structure of Growth Increased private sector productivity was the main engine of growth after the 2001 crisis. The Turkish economy grew 6.8 percent annually on average during 2002–07, versus 3.2 percent during 1995–2001. The rapid growth was facilitated by two developments. First, the commitment to sound economic policy by a stable government reduced the country risk premium and boosted overall confidence (figure 11.4). Reforms that achieved macroeconomic stability, improved corporate governance, and higher labor productivity enhanced the contribution of TFP to growth. Second, the extraordinarily benign global economic environment, in the form of high external demand and large capital inflows, supported exports and private investment. The industrial and service sectors rapidly raised their productive capacity. These sectors—especially machinery equipment—played a leading role in GDP growth, whereas agriculture lagged. Services, led by transportation, trade, construction, and financial intermediation, contributed 4.3 percentage points to the average GDP growth of 6.8 percent in 2002–07. Manufacturing led industry and contributed nearly Figure 11.4. The Emerging Markets Bond Index (EMBI) + Turkey Spreads 1,200 1,000 basis points
800 600 400 200 0
20 0 20 0Q 00 1 20 Q3 0 20 1Q 01 1 20 Q3 0 20 2Q 02 1 20 Q3 0 20 3Q 03 1 20 Q 0 3 20 4Q 04 1 20 Q3 0 20 5Q 05 1 20 Q3 0 20 6Q 06 1 20 Q3 0 20 7Q 07 1 20 Q3 0 20 8Q 08 1 20 Q3 0 20 9Q 09 1 20 Q3 10 Q 1
502
EMBI + Turkey spread Source: JP Morgan.
EMBI + spread