The major findings in this research would have significant policy implications in the continued transformation of the economy in general and industry in particular and therefore in coping with inflationary inertia and an ever-rising current account deficit.It seems that most industries have already come to the end of an era which contributed positively to recent competitive performance. In that regard, future performance is in a knife-edge situation, requiring the deepening of recent reform traffic, in cooperation with the private sector.
In the figures quoted below, Turkey's competitiveness is compared with other emerging market economies in terms of unit labor costs. Findings show that Turkey's performance was above average during 2002-2007. The figure shows that the 2001 crisis had brought about an important competitive strength to Turkish industries. Of course, you may be surprised to hear a statement arguing that "a deep crisis would bring about competitive strength." The intention behind this statement is to point out an existing illusion or irrationality that people understand as the source of competition in Turkey.
A radical devaluation of the lira during the crisis temporarily corrected the competitiveness of Turkish industries. However, many experiences, at least during Turkey's lost decade -- the 1990s -- have convincingly shown that the situation for exchange rates to contribute to competitiveness is quite complicated. Even if inflation-devaluation contributed to the price competitiveness of Turkish industries, its impact remained quite transitory. Even worse, this illusion prevented a structural transformation of the economy.
As was seen soon after the crisis, the positive impact of the devaluation disappeared and the competitiveness of the industries declined radically by 2004. Surprisingly, it started rising once more in a period in which the lira started to rapidly appreciate.
So what are the sources of competition in the new era after the collapse of the old paradigm of competition?
