Changes in the structure of Turkey’s trade and investment since 1980 and the chronic deficit in trade and savings

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Many countries globally have indicated notable economic growth because of their choice to develop business by approaches such as adopting to liberalize their domestic markets to foreign players hence attracting foreign domestic investments (Cambazoğlu & Karaalp, 2012). Nevertheless, other countries have indicated other manifest to development economics other than that influenced by trade. For instance, some countries have had the benefit of economic development by the advantage of their geographic location and not just the openness to trade (Günçavdi & Küçükçiftç, 2011). Furthermore, apart from the internationalization of commerce as well as the advantage of geography there are other notable factors attributable to the economic flourishing of a nation. For instance, the observation of the rule of law, political stability and the role of policies, research, and development, climatic conditions, quality of institutions as well as the right to property indicate significance contribution to a county’s economic landscape (Günçavdi & Küçükçiftç, 2011). It is also important to note that in the course of a country’s economic growth pathway dynamics such as fiscal position greatly influences the rate of development. This paper analyses the changes in the structure of turkey’s trade and investment since 1980 and the chronic deficit in trade and savings.

The strategy of import substitution industrialization exemplified by tight shielding of an economy from imports, strictness on domestic prices as well as a controlled financial system was evident in Turkey before the 1980 and beyond trade environment (Atiyas & Bakis, 2015). The approach indicated significance dominance of the business space by parastatals. However, with the advent of the military coup in the year 1980, the country carved a significant economic pathway that has continued to influence the trade in Turkey to date. Even with these changes, the county has exemplified consistent trade and budget deficits (Zengin, 2000). Post the year 1980, much of what was evident was the rise of market liberalization and effecting policies that replaced the pre-1980 approach of import substitution industrialization. Liberalization occurred between the early years of the 1980s with the enactment of the capital account liberalization taking place in the year 1989 and coming into force in the following year (Atiyas & Bakis, 2015). The impact of the enactment made a provision for the country to pursue trade across the border with its neighbors as well as other distant nations. In fact, the 1996 adoption of the Custom’s Union relations with the European Union spurred market liberalization further (Atiyas & Bakis, 2015). For multiple decades, Turkey has taken advantage of an export market largely to European Union countries albeit with slight decline especially post the global crisis.

Importantly, trade liberalization in Turkey has not been without challenges. In essence, economic stability has not been apparent with indications showing high inflation rates after the period beyond the year 1987 and predominantly in the 1990s characterized by elevated interests rates, budget deficits as well as increased public debt (Atiyas & Bakis, 2015). The banking system has tried in vain to stabilize the fiscal system in the country especially by facilitating government securities. The role of banks in increasing their foreign exchange strategy especially due to plummeting domestic interest rates coupled with weak banking system supervision and regulation environment plunged the country into a banking crisis between the years 1999 and 2000 that almost collapsed the banking system itself (Atiyas & Bakis, 2015). The occurrence plunged the country into an economic crisis by the end of 2001 (Orhan & Nergiz, 2014).

The regime that came into power in the year 2002 (AKP) established a recovery program to counter the effects of the banking crisis of the preceding years. The program saw the gross domestic product of the country grow by 5.1 percent on average between 2002-2010 and reduced the public debt ratio to 30 percent by the close of the 2010 financial year from the 66 percent witnessed in the ear 2001 (Atiyas & Bakis, 2015). Within this period, regulation of the banking system took effect and the sanity thereof restored restricting the banking system to solidity. With reduced domestic interest rates, even access to credit increased (Atiyas & Bakis, 2015). Other structural improvements observed under the post-2002 regime include empowerment of legal and regulatory bodies thus improving economic policies. With reforms such as the increase in the independence of the central bank, the country witnessed increased foreign direct investment in the 2000s (Atiyas & Bakis, 2015).

One of the most important phenomena in the Turkish trading pace and the economy is the dynamism associated with the country’s fiscal position. The country continues to face deficits in its current account (Kutlay, 2015). The consistent flips in the balance of payment have continued to affect the country in large ways and most cases negatively (İşçimen, 2012). The capital inflows into the country, which in most cases are always short-term, affect the sustainability of the nation’s current account, which in most cases plunge it into a currency crisis. Therefore, because of such dynamics the country keeps on facing repeated instances of the chronic deficit in trade and savings. Unfortunately, the chronic deficit in the nation’s current account also threatens its future economic growth (Terzi, 2014).

Concisely, Turkey as the country has faced numerous structural transformation in trade and the associated policies. However, none of these has helped stabilize the business environment, and as such, the country has continued to face inconsistencies in trade elements such as the chronic deficit in trade and savings especially due to fiscal challenges. In essence, the country needs to review a mechanism that can put the country’s capital movement in check to ensure the positive impact on the economy and avoid unnecessary public debt.

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