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Turkey's Competitiveness in a European Context

Turkey's Competitiveness in a European Context

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Published by: World Economic Forum on Sep 30, 2008
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Introduction
4
Measuring Competitiveness
5
Measuring Turkey’s Competitiveness
7
Sub-index 1: Basic Requirements
10
Institutions
10
Infrastructure
11
Macroeconomy
11
Health and Primary Education
12
Sub-index 2: Efficiency Enhancers
13
Higher Education and Training
13
Market Efficiency
13
 Technological Readiness
14
Innovation and Sophistication Factors
16
Business Sophistication
16
Innovation
17
Conclusions
18
References
18
Footnotes
19
 Appendix
20
Contents
3
Turkey’s Competitiveness in a European Context © 2006 World Economic Forum
 
Over the past half-decade, Turkey has beenundergoing a process of deep economic andpolitical reform. This process was triggered by themajor economic crisis in 2001 (which led to analmost 8% contraction of GDP) and the accelerationof the convergence process with the EuropeanUnion (EU) following Turkey’s designation as acandidate country in 1999 and the official opening of accession talks in 2005. The tight fiscal and monetary policies adopted in theaftermath of the 2001 economic collapsesignificantly curbed inflation to single digit figures inthe 2002-2005 period and the economy quicklyrebounded, with GDP growth rates as high as 7%.Meanwhile, the wave of economic and politicalreforms to meet the Copenhagen criteria set thebasis for a more market-friendly economy andreinforced the democratic fundamentals of Turkishsociety by substantially reducing the military’s role inpolitics, adopting a new, more liberal penal code in2005 and improving the rights of women andminorities. These achievements highlight the pace of Turkey’smodernization and demonstrate the increasingreadiness of the country to progress to a moreadvanced stage of development. However, anumber of troubling elements of economic andpolitical vulnerability have yet to be addressed,namely, large macroeconomic imbalances and thestill rather wide gap with international standards onhuman rights, freedom of expression, minority rightsand judicial independence. These concerns, combined with the sheer size of  Turkey’s population (71 million, projected to increaseto 80-85 million by 2020), its relatively low GDP percapita (by EU standards), the continuing importanceof agriculture in the economy, cultural differencesand the extent of institutional reforms yet to becarried out, make it easy to understand theextraordinary challenges that the EU – and Turkeyalike – face along the integration process. This stateof affairs, combined with geopolitical disagreements(most particularly over Cyprus), might explain therather ideological tone assumed from time to time inEuropean national debates on Turkey’s accession ascompared to the recent enlargement in 2004 andthe accession of Bulgaria and Romania scheduledfor January 2007. In this respect, among EUcountries, it sometimes seems as if speculative fearsand suspicions have prevailed over a judiciousassessment of the actual economic, social andpolitical implications of a fully “European” Turkey.European suspicion has, in turn, generated abacklash among many Turkish citizens, who havegrown increasingly impatient with the pace andrequirements of the adhesion process. Against such a background, this paper attempts toprovide a set of basic facts on the current state of  Turkey’s economic competitiveness. Using the WorldEconomic Forum’s methodological framework of theGlobal Competitiveness Index, we identify Turkey’smain competitive strengths and weaknesses andhighlight the areas on which the country shouldfocus in order to achieve sustainable growth andenduring prosperity for its citizens. Comparisonswith EU member, accession and candidate countrieswill further provide an idea of Turkey’s economicpreparedness to move to a more advanced stage of development and to join the EU on a mutuallybeneficial basis.
4
Introduction
Turkey’s Competitiveness in a European Context © 2006 World Economic Forum
 
 The goal of the World Economic Forum’s work oncompetitiveness is to contribute to a betterunderstanding of the key ingredients of economicgrowth and prosperity. By highlighting the strengthsand weaknesses of an economy, policy-makers,business leaders and other stakeholders are offeredan important tool for the formulation of improvedeconomic policies and institutional reforms.In order to assess national competitiveness, we usethe Global Competitiveness Index (GCI), whichmeasures the set of institutions, policies and factorsthat set the sustainable current and medium-termlevels of economic prosperity. The GCI is the mostcomprehensive competitiveness index to date,measuring both the macro- and microeconomicdrivers of productivity across a large number of countries.
1
 The measurement of competitiveness represents acomplex undertaking; one cannot simply pinpointone or two areas as being critical for growth andprosperity. In this light, the GCI, with its nine distinctpillars, captures the idea that many differentelements affect competitiveness. These are identifiedas: institutions, infrastructure, the macroeconomy,health and primary education, higher education andtraining, market efficiency (goods, labour, financial),technological readiness, business sophistication andinnovation. Each of these pillars plays a critical rolein driving national competitiveness. The nine pillars are measured using both hard datafrom public sources (such as inflation, Internetpenetration and school enrolment rates) and datafrom the World Economic Forum’s Executive OpinionSurvey, which is conducted annually among topexecutives in all of the countries assessed. TheSurvey provides crucial data on a number of qualitative issues (e.g. corruption, confidence in thepublic sector, quality of schools) for which no harddata exist.
2
 Another important characteristic of the GCI is that itexplicitly takes into account the fact that countriesaround the world are at different levels of economicdevelopment. What is important for improving thecompetitiveness of a country at a particular stage of development will not necessarily be the same for acountry in another stage. For example, whatpresently drives productivity improvements in theUnited States is different from what drives them in Turkey. In other words, economic developmentprogresses in stages. Thus, the GCI separatescountries into three specific stages: factor-driven,efficiency-driven and innovation-driven.
5
Measuring Competitiveness
BASIC REQUIREMENTS1. Institutions2. Infrastructure3. Macroeconomy4. Health and Primary EducationKey forFACTOR-DRIVENeconomiesEFFICIENCY ENHANCERS5. Higer Education and Training6. Market Efficency (goods, labour, financial)7. Technological Readiness
Key forEFFICIENCY-DRIVENeconomies
INNOVATION & SOPHISTICATION FACTORS8. Business Sophistication9. Innovation
Key forINNOVATION-DRIVENeconomies
Figure 1. The Nine Pillars of Competitiveness
Source: The Global Competitiveness Report 2006-2007
Turkey’s Competitiveness in a European Context © 2006 World Economic Forum

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