Thursday, April 16, 2015

Dani Rodrik — Turkish economic myths

Preparing for a panel discussion on Turkey gave me the opportunity of putting together some notes and slides on the country’s economy.
That Turkey is not doing well at the moment, economically or politically, is well known. But the roots of the problem remain misunderstood. Many analysts blame the weakening of “structural reforms” (on economics) and the turn towards authoritarianism after the Gezi protests in 2013 (on the politics). See for example here. In truth, Turkey’s problems on both fronts predate the recent slowdown in growth and have been long ingrained in the governing party’s (AKP) strategy. I have discussed the politics before at length. Here I focus on the economics.….
Of the rails here.
The AKP government was able to move the public sector into surplus (except for the crisis year of 2009), an achievement for which it receives great credit. But this improvement was more than offset by a substantial deterioration in the private sector balance. What has happened, in other words, is that the private sector has been encouraged, through easier access to credit, to go on a borrowing binge. Financial indiscipline and reckless have not disappeared; they have moved from the public to the private sector.…
If the government increases its surplus ("net saves"), then the private sector must increase its deficit ("net borrow") unless the external sector offsets the increase in government "saving" by saving less, that is, net exports much increase correspondingly.

Dani Rodrik's Weblog
Turkish economic myths
Dani Rodrik | Albert O. Hirschman Professor of Social Sciences at the Institute for Advanced Study in Princeton, New Jersey

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