Term Paper: Turkey's Economy the Republic

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Turkey's Economy

The Republic of Turkey is a state situated in South-Western Asia and South-Eastern Europe, covering approximately 779,452 sq m. The state is inhabited by 57,326,000 people and the capital is Ankara. In 1993, the medium income was of approximately $1,630 per inhabitant.

The two parts that compose Turkey, the European and the Asian one, have different natural conditions. The European part, that covers about 3% of Turkey's territory, presents two lines of medium height mountains enclosing a plain. The Asian area, which is called Anatolia, is consisted of a central plateau surrounded by mountain chains.

As mentioned above, Turkey has a 57,326,000 population, of which 48% lives in the urban area. The most important cities in Turkey are: Istanbul, Izmir, Adana, Konya, Bursa, Samsun, Manisa, and Antalya. The country's population is consisted of 90% Turkish people, 7% kurds, and the rest of 3% is represented by Arabs, Greeks, and Armenians. An important number of Turkish citizens work abroad, especially in European Union member countries. 90% of Turkey's population inhabits the Asian part of the country, but the highest density can be found in the European part of Turkey.

Regarding the economy, Turkey has various underground resources, like: oil, earth coal, iron ore, chrome ore, bauxite ore, magnesium ore, borax ore, mercury ore, sulfur ore, salt ore, and others. However, production volume in these areas is not significant, except for chrome, magnesium, and borax. In the 1980s, Turkey's economy has started to remarkably expand, especially where industry is concerned. Diversified industry (including steel, non-ferrous metals, cars, chemical fertilizers, cement, textiles, olive oil, beer, sugar, and others) contributes about 30% to the country's GDP and can be found in both important urban areas and specialized centers.

Turkey's agriculture involves over 50% of the active population and is specialized on cereals culture, with exceeding volume for exports, citrus fruits culture, and vine (for raisins, Turkey is the second largest producer in the world). Also, Turkey is one of the world's largest apricots, nuts, pistachio, almonds, and olives producers. The country's traditional animal rearing (sheep, goats, horned cattle) excels the vegetal production.

Turkey's communications network is in a full process of development. Tourism's contribution (which has a very valuable and diverse potential) is also increasing. In Turkey's balance sheet, a very important role is played by the 1 million Turkish people working in the European Union, especially in Germany and the external financial aid.

Turkey's economy evolution over the past decades

During war World I and coinciding with the collapse of the Ottoman Empire, Turkey's economy was in a deplorable stage of underdevelopment. The country's poor industry was consisted of only a few factories that only produced basic products, like sugar and flour. Even more, these factories were controlled by the world's greatest states at that time. Agriculture itself was in no better situation, as it was depending on obsolete techniques and poor-quality livestock (Chapin Metz, 1995). The greatest economic development process that Turkey went through took place between 1923 and 1985, when the economy was growing at an annual rate of 6% on average. This economic development was mostly due to government policies and resulted into creating a complex economic system preoccupied with developing both industry and agriculture in order to best serve internal markets as well as international ones.

The greatest period of economic development was between 1923 and 1926, right after the war ended, when agricultural output rose by 87%, and industry and services rose by over 9% each year until 1929. However, this development process only lasted until 1930, when the world depression forced Turkey's external markets for agricultural exports to collapse. This is when the government decided it was time to take the initiative and promote economic recovery. Between 1935 and 1939 economic growth still reached 6% each year. Due to World War II this development period was followed by a stagnation period for Turkey's economy during the 1940s.

The period between 1050 and 1970 was characterized by several economic crises. The most important of these crises took place in the late 1970s. The crises were especially related to balance payments. As a consequence, Turkey's external accounts were somehow improved through a set of measures that included: devaluations of the Turkish lira, austerity programs implemented in order to dampen domestic demand for foreign products. These actions followed the International Monetary Fund guidelines. This great crisis led to three-digit inflation by 1979, the increase of unemployment with approximately 15%, only half of the industry's capacity was in use, while the government was proving to be unable to pay the interest on foreign loans.

The crisis period was followed by a reforms period. Therefore, in 1980, the government started the implementation of a reform program that was supposed to orient Turkey's economy towards export-led growth. The artisan of this reform program was Turgut Ozal, the Deputy Prime Minister at the time. This program consisted in replacing import-substitution policies with exports that could finance imports. The program consisted in a set of actions that included: "the devaluation of the Turkish lira and institution of flexible exchange rates, maintenance of positive real interest rates and tight control of the money supply and credit, elimination of most subsidies and the freeing of prices charged by state enterprises, reform of the tax system, and encouragement of foreign investment" (Chapin Metz, 1995).

This program was followed by a liberalization program that overcame the balance of payments crisis. The Iran-Iraq War that took place in the 1980s was actually beneficial for Turkey's economy and its development. Turkey's economy went through a new crisis in 1994.

Turkey's economy overview

Generally speaking, Turkey's economy can be considered a complex mixture of traditional agriculture and craftsmanship on the one hand, and modern industries on the other hand. However, although there is such a balance combination between the two, modern industries and commerce are significantly increasing their dominance. Although traditional agriculture may not seem to be a preferred practice for most of the civilized countries nowadays, it seems to be a very suitable scenario for Turkey, as the country's large agriculture sector ranked 7th in the world in 2005 as production output is concerned. In addition to this, Turkey's agriculture sector is responsible for providing the largest amount of employment that reaches approximately 30-35% of all jobs (Wikipedia, 2007).

Although the Turkish government continues to be an important actor that significantly influences sectors like basic industry, banking, transport, and communications, the private sector has shown a strong and rapid increase in the recent past, which is a very positive signal for potential foreign investors. Foreign investors might consider the largest industrial sector which is represented by textiles and clothing. This sector is responsible for providing about 30% of jobs in Turkey.

Other sectors that foreign investors might want to take into consideration are the automotive and electronics industries. These industries' importance within Turkey's export mix is rising (CIA, 2007). Although Turkey's real GNP has had a great evolution over the past 17 years, this series of economic success was interrupted several times by sharp declines in output in 1995, 1999, and 2001. However, due to the successful implementation of economic reforms, the GDP increased up to 9% in 2004 and up to 5% in the following years. Also, inflation fell to 7.7% in 2005 but increased again in 2006 when it reached 9.8%.

The most important economic indexes had the following values recently: GDP (purchasing power parity) - $635.6 billion in 2006; GDP (official exchange rate) - $358.5 billion in 2006; GDP (real growth rate) - 5.3% in 2006; GDP (per capita PPP) - $9,000 in 2006; GDP (composition by sector) - agriculture 11.2%, industry 29.4%, services 59.4% in 2006; labor force - 24.8 million, 1.2 million Turks work abroad in 2006; labor force by occupation - agriculture 35.9%, industry 22.8%, services 41.2% in 2004; unemployment rate - 10.2%, underemployment 4% in 2006; population below poverty line - 20% in 2002; household income or consumption by percentage share - lowest 10%: 2.3%, highest 10%: 30.7% in 2000; distribution of family income (Gini index) - 42 in 2003; inflation rate (consumer prices) - 9.8% in 2006; investment (gross fixed) - 20.1% of GDP in 2006; budget - revenues $112.3 billion, expenditures: $121.6 billion in 2006; public debt - 64.7% of GDP in 2006; agriculture products - tobacco, cotton, grain, olive, sugar beets, pulse, citrus, livestock; industries - textiles, food processing, autos, electronics, mining (coal, chrome, copper, boron), steel, petroleum, construction, lumber, paper; industrial production growth rate - 5.5% in 2006; electricity production - 143.3 billion kWh in 2004; electricity consumption - 140.3 billion kWh in 2005; electricity exports - 1.1 billion kWh in 2004; electricity imports - 500 million kWh in 2004; oil production - 50,000 bbl/day in 2005; oil consumption - 715,100 bbl/day in 2005; oil exports - 46,110 bbl/day in 2001; oil imports - 616,500 bbl/day in 2001; oil proved reserves - 288.4 million bbl in 2002; natural gas production - 688 million cu m in 2004; natural… [END OF PREVIEW]

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