On Turkey's European Trade Policy: How Desirable is a Status Quo

International Relations/Trade,

A Computable General Equilibrium Model for Development Policy Analysis

Agricultural and Food Policy,

Structural Adjustment and Trade in Turkey: A General Equilibrium Analysis of the Export-Led Versus Domestic Demand-Led Strategies of Development

This paper attempts to assess the feasibility of the current strategy of manufactured export-led growth for Turkey over the Fifth and Sixth Five-Year Plan periods (1985-1994). The explicit hypothesis of the paper is that a domestic market, wage-goods oriented development strategy with agriculture leading the process will be more conducive to Turkey's long-term economic growth, as compared to an export-oriented strategy. The simulation experiments are conducted with the aid of a dynamic micro-planning model which belongs to a class of price-endogenous constructs known as Computable General Equilibrium (CGE) models. The model as applied to Turkey distinguishes seven economic sectors, four types of labor, three consumer groups, seven social classes, and a government. In addition, it accommodates both fixed and flexible wages along with a disequilibrium mechanism of labor allocation, endogenous rural-urban migration, international trade flows with government intervention, and separate rules of allocation for the private -versus- public fixed investment. The overall conclusion that is supported by this study is that by combining a time-wise regressive, selective export-promotion program with a domestic demand oriented, wage-goods strategy, Turkey can achieve a superior growth performance over the current strategy of manufactured export-led industrialization. The model results further emphasize the pressing need for the revitalization of the domestic demand, and the importance of the agricultural productivity growth in promoting Turkey's overall objectives of industrialization, income equity, and foreign trade over the Fifth and Sixth Plan periods.International Development, International Relations/Trade,

An Open Economy Model of Political Influence and Competition Among Rent Seeking Groups

The paper develops a formal model of government's economic decisions as influenced by private agents within the context of neoclassical political economy. The government is assumed to form preferences over interest groups in the economy; in turn these preferences are influenced by the rent seeking behavior of these groups. An open, two-household, two-sector general equilibrium model is constructed to depict an environment in which preference-maximizing (rational) individuals allocate otherwise productive labor to directly unproductive rent seeking activities in order to exert political pressure on the government's choice of policy instruments. With the aid of five comparative-static experiments, the game-theoretic component and the second-best nature of the rent seeking environment is discussed. Insights are also provided on the influence of technological change, and changes in lobbying efficiency on resources allocated to rent seeking by interest groups. Key words: Rent Seeking, Political Economy, General Equilibrium.Political Economy,

Political Economy Perspectives on the 1994 Turkish Economic Crisis: A CGE Modeling Analysis

This paper investigates the role of the deterioration of the Turkish public sector balances in the latter half of the 1980's and the evolution of the economic crisis with the aid of a computable general equilibrium model. The theoretical basis of the model utilized in the paper rests upon the Walrasian and the Structuralist/Keynesian macro foundations. The model recognizes 15 production sectors, 3 socio-economic income groups and a central government; and simulates the production, income distribution, consumption, capital accumulation and foreign trade processes of the national economy within a simultaneous system of algebraic equations. The distinguishing feature of the model is that, it accommodates monopolistic mark-up pricing rules in the industrial sectors, and endogenously solves for capacity utilization and unemployment level through Keynesian mechanisms of effective final demand. The model investigates the evolution of the crisis under three main headings: (i) the role of the financial crisis and the unprecedented deficit in the public sector balances; (ii) the roles of the foreign borrowing strategy of the state and the short term foreign capital inflows on balance of payments and the foreign exchange rate; and (iii) the role of the political-economic relations of income distribution and inflationary processes emanating from real wage increases and non-competitive pricing behavior in the industrial sectors. The general equilibrium results of the model underscore the importance of intra-class relations of income distribution and conflict in the evolution of price movements in the Turkish economy; and suggest that the sources of the crisis lie in the historical role of the administrative interventions of the state towards protection of the capitalist and rural incomes, which would otherwise be squeezed out in favor of wage-labor in the late-1980's.Political Economy,

An intertemporal, multi-region general equilibrium model of agricultural trade liberalization in the South Mediterranean NICs, Turkey, and the European Union

With the aid of an intertemporal, multi-region general equilibrium model, the authors study issues of agricultural trade liberalization, growth and capital accumulation in the context of a world economy moving towards a multi-polar structure. They specifically focus on Turkey, the European Union, the Middle East, and the Economies in Transition; and study alternative scenarios of formation of customs unions and increased trade orientation. The model is based on intertemporal general equilibrium theory with Ramsey-type dynamics. The world economy is fully endogenized within a 9-region specification, with Turkey, EU, Middle East and the Transition Economies constituting as one of the indigenous regions. A key feature of the model is its explicit recognition of both the commodity and foreign capital flows across regions in an endogenous setting, and its explicit portrayal of the out-of-steady state dynamics under an intertemporal optimization framework. They explore the short- versus the long-run economic impacts of alternative trade and investment policies on agricultural production, foreign trade, resource allocation, accumulation, consumer welfare, and income distribution in the regions of analyis. The results reveal significant gains from increased bilateral trade between the identified regions, and further underscore the crucial importance of financing commodity trade deficits in sustaining the accumulation patterns.Economics Models. ,Trade liberalization. ,Foreign trade Mathematical models. ,Agricultural trade. ,TMD ,

How Fiscal (Mis)-Management May Impede Trade Reform: Lessons From an Intertemporal, Multi-Sector General Equilibrium Model for Turkey

We utilize a multi-sector general equilibrium model based on intertemporally optimizing agents to study issues of trade liberalization and fiscal adjustments in the context of the Turkish economy. A key feature of the model is its explicit recognition of the distortionary consequences of excessive borrowing requirements of the public sector through increased domestic interest costs. The model results suggest that the postponement of adjustment to growing public debt and fiscal imbalances could be detrimental; and that in the absence of coordinated fiscal reforms, the welfare gains expected from trade liberalization may significantly be negated.International Relations/Trade,

Conflicting Interests and Structural Inflation: Turkey, 1980-1990

The paper analyses the structural causes of the recent Turkish inflationary episode. It is argued that monetary policies based on credit tightening alone are not likely to yield the desired target of price stabilisation. Instead, it is hypothesised that the underlying sources of price inflation are affected by income inequality and conflicting claims on national output; and that excessive credit expansion serves mainly to accommodate the inertial inflation thereby originated in the real sector. Given this hypothesis, the paper employs a computable general equilibrium model to investigate four distinct sources of structural inflation for the Turkish economy: (i) the profit/rent inflation based on monopolistic mark-ups over prime costs; (ii) imported inflation due to the import-dependent structure of the domestic industry; (iii) cost-push and demand inflation due to urban wage claims; and (iv) inflation that results from the fiscal pressures of the government's budget deficits. The general equilibrium model is in the Keynesian tradition in determining the production level by aggregate demand constraints. Furthermore, it accommodates oligopolistic mark-up rules and working capital expenses for price determination, and nominal wage fixity to determine the level of employment. The general equilibrium analysis of the macro economy suggests that, over the analysed period, conflicting claims of various social classes on national output and conflicting rates of intersectoral accumulation warranted by competing producer groups have become important sources of disequilibria in the domestic economy; and that the distributional conflict among socio-economic classes had a direct impact on the formation of price movements.

A Dynamic CGE Model: An Application of R&D- Based Endogenous Growth Model Theory

An R&D based endogenous growth - applied general equilibrium model is developed from an underlying analytical model which combines Romer's capital variety with Grossman and Helpman's multi-sector open economy model. The transitional dynamics of the analytical model are derived. For numerical implementation, a time discrete empirical model, with an Armington structure, is fit to East Asian data of the social accounting matrix variety. Simulations of trade reform are performed and their static and dynamic effects compared. The transition paths of the state variables are found to have a half-life of five to six periods. A solution of the Social Planner's problem, and interventions which seek to obtain this outcome from the decentralized model are also obtained'.Applied General Equilibrium, Trade, Growth, International Relations/Trade, F11, 031, 041,

Interest Rate Smoothing and Macroeconomic Instability under Post-Capital Account Liberalization Turkey

Working Paper 173We study how the interest rate policy of the Central Bank of the Republic of Turkey (CBRT) has evolved under the post-financial liberalization and deregulation era. Utilizing econometric methods on a generalized form of a Taylor Rule we search for the possible revelation of a variety of determinants of monetary policy with different objectives over 1994-2007. We find that over such an extended time horizon during which significant shifts in the macroeconomic environment have occurred, the CBRT’s almost exclusive focus on “interest rate smoothing” has not changed; and that the CBRT has not paid any attention to developments in national income. This raises the question whether there is a deeper underlying structural constraint, binding the CBRT’s alleged “independence”. We trace the basics of this deep structural constraint to the nature of the global financial system restricting the ability of the central banks to pursue “independent” policy objectives