Turkey’s global integration in terms of trade and finance has reached an unimaginable stage in the last six years as compared to other developing countries and/or Turkey’s own historical path in economic openness since the early 1980s, when Turkey closed the era of import substitution industrialization with a significant failure and gave way to the so-called export oriented development.
In that regard there are several elements of convergence with the industrial countries of the West. The share of export, import and trade volume in gross domestic product (GDP) was 23, 35 and 55 percent, respectively, as of 2006. The first message is the rising unidirectional import dependence of Turkey to the world markets in terms of both export and final output. As a matter of fact, as the trend of intra-industry trade increases tremendously, foreign dominance in Turkey’s export sectors, i.e., mainly in high-tech industries such as automobile and electronic equipment, is also increasing with a significant share.
A similar process is under way in financial integration. Turkey has attracted almost $44 billion and $46 billion of foreign capital in 2005 and 2006, respectively. On the side of liabilities, of this financial inflow, approximately $20 billion, is composed of foreign direct investment (FDI), $11.4 billion in portfolio investment, $11.7 billion in banking credits and $22 billion in export and import credits to other firms.
As of today, cumulative foreign capital in Turkey has reached $340 billion. Profit expatriation has reached almost $5 billion per annum.
Foreign dominance has become more visible in the financial sector, organized retail markets and increasingly in the manufacturing industry. By looking at historical evidence, I think it is the right time to make some predictions and suggestions on the current trajectory so as to sustain Turkey’s global integration, without being interrupted by some unexpected social reaction, for example.
Obviously, historical experiences cannot be expected to yield detailed policy prescriptions for the present because of different demographic, international, political and technological contexts. However, the following observation might have relevance, directly or indirectly:
Turkey needs to transfer technology by integrating into the world system. However, today’s striking gap in development levels between advanced and developing countries, such as Turkey, makes advanced technology transfers much less suitable in some traditional industries. Therefore, some classical industries are under the pressure of severe contraction.
With dramatic transportation and communication revolutions, gaps in development also have created unrealistic expectations. That is why the consumption pattern and level of most Turks do not reflect their real purchasing power or income. In this process, foreign banking plays a significant role in extending consumer oriented credit. Therefore the rate of indebtedness is rising rapidly.
Turkish society has faced the notion of real market challenges for the first time in the last century. Turkey has made several attempts to expand market system change by eliminating internal legal barriers, creating credit channels, facilitating land transactions, preserving private property rights, etc. In fact, the spread of market institutions in Turkey for the last five to six years has accelerated overall economic change. For instance, it accelerated export expansion, the rise in per capita income growth and industrialization.
(To be continued)
