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Coping with the Economic Future Turkey's Position in the G-19 Country Group. Horst Hanusch University of Augsburg, Augsburg Email: [email protected] Yasushi Hara Hitotsubashi University, Tokyo Email: [email protected] Izmir, June 10, 2014. Contents.

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Coping with the economic future turkey s position in the g 19 country group

Copingwith the EconomicFutureTurkey'sPosition in the G-19 Country Group

Horst Hanusch

University of Augsburg, Augsburg

Email: [email protected]

Yasushi Hara

Hitotsubashi University, Tokyo

Email: [email protected]

Izmir, June 10, 2014


Contents
Contents

  • Introductoryremarks

  • Goals of the study

  • Variety of growthmodels

  • Future-orientation in the concept of CNSE

  • Empiricalanalysis

  • Empiricalresults

  • Conclusions

  • Literature


Introductory remarks 1
IntroductoryRemarks (1)

  • Ifyoulookaround in the worldeconomy, youcanobserve a variety of countries whichexistat different levels of development

  • Each of themhastomaster ist ownspecificdevelopmentprocess, either in catchingupor in transforming

  • How the various countries, belongingto different continentsandcultures, will succeed in thisendeavour, issurely the mostexcitingandimportantissue of futuredecades.

  • It will determine the course of the worldeconomyas well as the economicfuture of mankind


Introductory remarks 2
IntroductoryRemarks (2)

  • One of the mostinterestinggrouping of countries in thatrespectis the G-20 or G-19 group (without EU)

  • Thisgroupis an economic, financialandpoliticalforum, meetingregularilyandconsisting of majoreconomies, advancedanddevelopingones, allocated in Asia, Europe, Euroasia, North- and South America, the Middle East andOceanics

  • Togethertheyaccountforabout 77% of GDP, 60% of worldtradeand 62% of the worldpopulation (Vestergard 2011)


Goals of the study 1
Goals of the Study (1)

The centralaim of the studyis:

  • togainnewinsightsandfindingsconcerning the variety of future-orientation of G-19 countries

  • toshowhow Turkey iscopingwithitseconomicfuture in comparisonto the G-19 countries


Goals of the study 2
Goals of the study (2)

Tomeetthistargetwe

  • tryto bring the notion of future-orientation on a concretebasisbyusingindicatoranalysis

  • investigatepatterns of similarities in the set of indicators

  • showhowthesepatternslooklikebyapplyingclusteranalysis

  • drawsomeconclusionsfrom the patternsconcerning the developmentalstatusandvariety of the G-19 countries

  • with a specialfocus on the Turkisheconomy


Future orientation
Future-Orientation

  • Future-orientationhas different meanings in the process of development, depending on the model usedforexplainingortargetingeconomicadvancement

  • An empiricalindicatorstudy of future-orientationfor a group of countries hastochoose the rightdevelopment model

  • This model buildsup the conceptualframe of the studyand

  • Provides the necessaryingredientfor an empiricalapplication


Variety of growth models 1
Variety of growthmodels (1)

  • The economicliteratureknows a number of different growthordevelopmentmodels.

  • A variety of growthmodelsis also practiced in different countries around the world.

  • The growthmodelscanbedifferentiatedandcharacterizedbyusingspecificcriteria.

  • In order toget a comprehensiveoverviewthreecategoriesareusedforgrouping:

    (a) economicgrowthelements

    (b) growthordevelopmentpaths

    (c) institutionalsettings


Variety of growth models 2
Variety of growthmodels (2)

In such a contexttwomainapproaches in today`sgrowthor

developmenttheorycanbeemphasized.

  • Neo-classicalapproach

  • Schumpeterianapproach

    Additionally, in the last decade a thirdapproachisgetting

    moreandmoreintellectualandpoliticalimportancewhich

    mightbecalled

    (c) theory of smart growth


Variety of growth models 3
Variety of growthmodels (3)

Neoclassicalapproach

The neoclassicalapproachgoes back to the work of Solow in the 1950s. In the followingdecadesit was developedstepbystepbased on severaltheoreticalprinciples:

  • individual rationality

  • profitandutilitymaximizingbehaviour on markets

  • exogenoustechnologicalprogress

  • a continuousgrowthprocessending in a longtermstableequilibrium


Variety of growth models 4
Variety of growthmodels (4)

Catching-upmodels (1)

  • In our time the traditional neoclassicalapproachattaineditsvirtualimportance in the socalledcatching-upmodels

  • Theycanbedividedintotwovariants, following Porter and Stern (2004):

    • factorinducedanddrivengrowth (model 1)

    • investmentforcedgrowth (model 2)


Variety of growth models 5
Variety of growthmodels (5)

Catching-upmodels (2)

Model 1 (M1): Main growthelements

  • labor intensive production

  • intensive use of givennaturalresources

  • export of naturalressourcesormanufacturedgoods (especially in a globalisedworld)

  • import of technologies (exogenoustechnologicalprogress) via

    • goodswithhightechnologicalingredients

    • directforeigninvestment

    • imitation


Variety of growth models 6
Variety of growthmodels (6)

Catching-upmodels (3)

Model 2 (M2): Main growthelements

  • Production of standardizedproductsandserviceswith a comparativeadvantage

  • Investment in infrastructure

  • Easy capitalaccess

  • Industryorientedeconomicpolicy

  • Technology import via

    • Licences

    • Joint ventures

    • Directforeigninvestment

    • imitation


Variety of growth models 7
Variety of growthmodels (7)

Schumpeterianapproaches

Schumpeteriangrowthmodelsgainedtheirimportance in literatureandpoliticalpractice in the last threedecadesor so. Theycanbedifferentiated in an

  • Traditional Schumpeterianapproach (model 3)

  • Neo-Schumpeterianapproach (model 4)

  • Approach of „Comprehensive Neo-Schumpeterian Economics“ (model 5)


Variety of growth models 8
Variety of growthmodels (8)

Traditional Schumpeterianapproach

Model 3 (M3): Main growthelements

  • Innovationsasdrivingforce in the growthprocess

  • Risktakingentrepreneurs (Schumpeter Mark I)

  • Corporate innovationmanagement (Schumpeter Mark II)

  • Technological progressas an endogenousprocess

  • Growth characterizedmainlyas a quantitative phenomenon


Variety of growth models 9
Variety of growthmodels (9)

Neo-Schumpeterianapproach

Model 4 (M4): Main growthelements

  • buildsup on model 3

  • improvedbystressing also qualitative growthfactorsandprocesses, based on formal or informal

    • Networks

    • Collaborationsbetweenfirms, governments, universities, researchinstitutions, e.g.

      Network (cluster) model, Silicon valley model, Eco-system model


Variety of growth models 10
Variety of growthmodels (10)

Approach of Comprehensive Neo-Schumpeterian Economics (CNSE)

  • CNSE isbased on Neo-Schumpeterian Economics (NSE)

  • NSE in itspresentshapeisfarfromoffering an integral theory of economicdevelopment

  • Most of the researchconcentrates on the real sphere of an economy

  • But, developmentisaccompaniedandinfluenced also byitsmonetaryrealmsand the publicsector


Variety of growth models 11
Variety of growthmodels (11)

Approach of Comprehensive Neo-Schumpeterian Economics (CNSE)

  • CNSE iscomposed of 3 institutionalpillars

    • Real sector

    • Financial sector

    • Public sector

  • Economicdevelopmenttakesplace in a co-evolutionarymanner, pushed, hinderedoreveneliminatedbetweenandwithin the 3 pillars


  • Variety of growth models 12
    Variety of growthmodels (12)

    Growth ordevelopmentpathfor M1, M2

    A typicalgrowthordevelopmentpathfor

    models 1 and 2 (catch-upmodels), embedded in

    a „Schumpeteriancorridor“ of future

    orientation (Hanusch/Pyka 2007) lookslike the

    following:


    Growth path of catch up models in neo schumpeterian corridor
    Growth path of catch-upmodels in Neo-SchumpeterianCorridor

    system

    success

    Growth path


    Variety of growth models 13
    Variety of growthmodels (13)

    • At the beginning of the growthprocesshighgrowthratesoccurwhich will diminishover time, ifnothingischanged in the institutionalsettingand/or the potential factors of the growthprocess

    • Thisgrowthpathistypicalformost of the developingoremerging countries around the world (Sharma, 2012)


    Variety of growth models 14
    Variety of growthmodels (14)

    Institutionalsetting: General Aspects

    • The institutionalsetting in economiesor

      societiescanbepicturedbyfocusing on the

      threemainsocio-economicpillars (real, financial,

      publicsector

    • These threepillarsbuildtogether an institutional

      architecture in which the developmentprocess

      of a societytakesplaceundercertain

      circumstances


    Variety of growth models 15 institutional setting in catch up models
    Variety of growthmodels (15)Institutionalsetting in catch-upmodels

    • Integrative developmentstrategy via pillarcloseness

    • High pillardependencenormallyguidedandcontrolledby the publicsector (statedominance, authoritarianstate)

    • Centralisticstructures

      • Pushing back individual freedom

      • limiting personal creativity

      • inducingbureaucracy

      • Facilitatingfraud (corruption)

    • Evenlysharedpillarprotectionagainstunforseenevents


    Variety of growth models 16
    Variety of growthmodels (16)

    Growth ordevelopmentpathfor M3, M4, M5

    The growthordevelopmentpathfor the models M3, M4 and M5 canbepicturedas the following:


    Growth path of schumpeterian models in neo schumpeterian corridor
    Growth path of Schumpeterianmodelsin Neo-SchumpeterianCorridor

    • System transformation

    • Structuralshift

    Growth path


    Variety of growth models 17
    Variety of growthmodels (17)

    Growth ordevelopmentpathfor M3, M4, M5

    • The growthpathforSchumpeterianmodelsischaracterizedbyunbalanceddynamicscombinedwithprocesses of

      • catchingup

      • falling back

      • forgingahead

      • leapfrogging

    • Thereexistsnocontinuousgrowthprocessending in a longtermequilibrium

    • Itischarcterizedbypunctuatedequilibriadeterminedbystructuralchangeortransformationshavingtheirorigins in disruptiveinnovations in the technological, social (political) orecologicalfield


    Institutional setting in cnse
    Institutional Setting in CNSE

    Development

    (Co-Evolutionary)

    Public Sector

    Finance

    Industry

    Orientation towards the Future: Uncertainty -> Institutionallyevendistributed


    Variety of growth models 18
    Variety of growthmodels (18)

    Institutionalsetting in CNSE

    • Relevance of future-orientationbetween the single

      pillarsas well as the interrelatedprocessesbetween

      them

    • Manypoints of contactsbetween the pillars, which

      occurasinterphasesandasintersections

    • In thisway the socialeconomicsystemisdrivenor

      hindered in a non-deterministicandco- evolutionary

      way


    Conceptual Frame of the Study (1)

    • An empricalcountrystudy of future-orientationbased on indicatorshastochoose the rightdevelopment model

    • Thismodel forms the conceptualframe of the study

    • Shouldthatbe a Neo-classicalor a Schumpeterian model?


    Conceptual Frame of the Study (2)

    Neo-classicalmodels

    • Havea greatdisadvantage: Not open to the future

    • Over time the developmentprocessendsup in a staticequilibrium (stagnation)

    • Static, efficiency-orienteddevelopmentstrategy

    • Problems foremerging countries which stick toolongandtoointensivelyto a catch-upphilosophy


    Conceptual Frame of the Study (3)

    Schumpeterianmodels

    • Rely on a concept of futurewhichis open to

      • „creativedestruction“

        • permanent changes

        • unexpectedevents

    • Incorporatetrueuncertaintyas a centralelement of

    • development

    • In ourindicatorstudywe will use CNSE asconceptualframeandasempiricalbackground


    Cnse in a nut shell
    CNSE in a nut-shell

    CNSE hastooffer a consistentconcept

    • dealingwithdynamicprocessescausing qualitative transformation of economies

    • drivenby the introduction of novelties in theirvariousand multi-facetedforms (technological, institutional, organisational, ecologicalandsocialdimensions) and

    • the relatedco-evolutionaryprocesses

    • not restrictedtoindustryonly, but also including the financialandpublicsphere of an economy

      (HanuschandPyka 2007)


    Future orientation in the context of cnse 1
    Future-Orientation in the Context of CNSE (1)

    • Future-Orientation in the context of CNSE has a normative aswell as a positive (empirical) aspect

    • The normative aspectconcerns the ideal institutionalsetting in CNSE whichassignseachpillar a proper role

    • The empiricalaspectconcerns the election of the rightindicators, expressingthe forcesandfactors of a CNSE-drivendevelopment

    • Thischallengehastobemetforeach of the 3 pillars


    Future orientation in the context of cnse 2
    Future-Orientation in the Contextof CNSE (2)

    Normative aspect: Proper role of pillars (1)

    • Real sectortask

      • fosterat all timesthroughinnovationsand parallel investments the knowledgeorientedprogressand the resultingwealth of a countryor a region

    • Financial sectortask

      • medium andlong-termorientedsustainablefinancialaccompagnimentandencouragement of innovative andsuccessfulcompaniesandsectors


    Future orientation in the context of cnse 3
    Future-Orientation in the Contextof CNSE (3)

    Normative aspect: Proper role of pillars (2)

    • Public sectortask

      • Monitoring of the futureoriented, long-termsymbiosis of the real and the financialsectorsas well astheirco-evolutionarydevelopment

      • Supporting the co-evolutionarydevelopment of the systemas an „entrepreneurialstate“ byadequatemeasures on the expenditureside (f. i. education, research, infrastructure) and the revenueside of the budget (f. i. growthandprogressoriented tax system)


    Future orientation in the context of cnse 4
    Future-Orientation in the Contextof CNSE (4)

    Positive (empirical) aspect: RightIndicators

    Ifusing CNSE asconceptualframework, the indicatoranalysishasto find the rightindicatorswhich

    • correspondwith the normative tasks of the threepillarsandalso

    • picturethe evolutionary „innovationfabric“ of a countryand

    • mirrorempirically the relatedco-evolutionaryprocesses

    • thesechallengeshavetobemetforeach of the threepillars of the socio-economicsystem


    Empirical analysis data and scope
    Empirical Analysis – Data and Scope

    • Employing 57 indicators for the pillars: real, public and financial sector in a CNSE perspective.

      • Real Sector: 22 indicators

      • Finance Sector: 17 indicators

      • Public Sector: 18 indicators

    • Scope [targeting – G-19 countries]:

      • Europe : France, United Kingdom, Germany, Russia, Italy

      • Americas : Argentina, Brazil, Mexico, United States and Canada

      • Asia : China, Australia, Japan, Indonesia, Korea, India

      • Euro-Asia/Middle East: Turkey, Saudi-Arabia

      • Africa : South Africa


    Empirical analysis method and data source
    Empirical Analysis – Method and Data Source

    • Method: Clustering Analysis

      • To detect cross-national (dis-) similarities in the structure and composition of a socio-economic system, focusing on future-orientation in G-19 Countries, three steps of procedure are necessary

        • Equalization and standardization (convert to [Z-score) for each indicator, then applying clustering analysis (Wald-method)for each pillar.

        • Determination of the number of clusters, and

        • Checking robustness via Median-method and drawing similar results.

    • Data Source

      • World Bank : Open Database

      • World Economic Forum : Global Competitiveness Report

      • Marketline Database


    Indicators for the three pillars
    Indicators for the three pillars:

    • Mainlyfocus on 2007-2012, to capture recent future orientation in G19 Countries for real, public and finance pillar.

    • Using 5-year average for each indicator





    Determining the number o f c lusters
    Determining the number of clusters

    • Method: Elbow rule

      • Identify the step where the distance makes a bigger “jump”.

    • Number of Clusters

      • Real : 4 clusters

      • Finance : 4 clusters

      • Public : 3 clusters


    Empirical results
    Empirical Results

    • Real Sector Pillar

    • Group 1 : France, United Kingdom, Germany, Korea and Saudi Arabia

    • Group 2 : Brazil, Russia, India, China, Mexico, Italy, Indonesia, Turkey, Argentina

    • Group 3 : United States and Japan

    • Group 4 : South Africa, Canada and Australia


    Empirical results cont
    Empirical Results (cont.)

    • Finance Sector Pillar

    • Group 1 : France, United Kingdom, China, Germany and Japan

    • Group 2 : Brazil, Russia, Mexico, Italy, Indonesia, Turkey, Argentina and Korea

    • Group 3 : United States

    • Group 4 : South Africa, Canada, India, Saudi Arabia and Australia


    Empirical results cont1
    Empirical Results (cont.)

    • Public Sector Pillar

    • Group 1 : France, United Kingdom, Germany, United States, South Africa, Japan, Korea, Saudi Arabia and Australia

    • Group 2 : China and Indonesia

    • Group 3 : Brazil, Russia, Mexico, Italy, Turkey, Argentina and India


    Conclusions 1
    Conclusions (1)

    • Thereare 3 countries whichare in the same clusterforeachpillar: France, United KingdomandGermany

      These countries convey a remarkablehomogeneityregardingtheirfuture-orientation

    • Fivecountries (Russia, Mexico, Argentina, Italyand Turkey) belongtocluster 2 in the real andfinancialsectorandtocluster 4 in the publicpillar.

      These countries, exceptItaly, areemergingonesstrugglingfor a higherdevelopmentstatus


    Conclusions 2
    Conclusions (2)

    • The Real Sector Pillar consists of 4 clusters

      • Japan and the United States are forming an own cluster. which shows high technology advancement and degree of future- orientation.

      • South Africa, Canada and Australia are in the same cluster. These are countries which are characterized by heavily-dependence on primary resources.

      • BRIC countries (Brazil, Russia, India and China) are in same cluster. They form the group of globally most important emerging economies.

      • Also the MINT-countries Mexico, Indonesia, Turkey are in that cluster, forming a group of economies with an upcoming high development potential.

      • There exists a cluster of European Countries (France, United Kingdom and Germany) together with Korea and Saudi Arabia.


    Conclusions 3
    Conclusions (3)

    • The Finance Sector Pillar consists of 4 clusters

      • The United States are forming an own unique cluster. That shows the dominance and importance of this country in a global future-oriented perspective.

      • There exists again a cluster of European Countries (France, United Kingdom and Germany). This time Japan joins this European group.

      • Concerning the BRIC countries, there doesn’t exist anymore a common cluster.

      • China is a member of the European Group as well as Japan. Brazil and Russia are forming a new group together with other emerging countries like Indonesia, Turkey and Mexico, the members of the so-called MINT group of countries. In this cluster, we also find Argentina, Italy and Korea.

      • South Africa, Canada and Australia, the natural resource dependent economies, are members of the same cluster, which is completed by India and Saudi Arabia.


    Conclusions 4
    Conclusions (4)

    • The Public Sector Pillarconsists of 3 clusters

      • There exists a large group of countries which belongs to cluster 1.

      • This cluster contains countries from Europe (France, United Kingdom and Germany) , Asia (Japan, Korea and Australia), completed by United States, South Africa and Saudi Arabia. The result may be an astonishing one, because it brings together countries from different economic regions in the world which, in addition, have a quite different status of development. So, one could conclude that the public sector is as an important player concerning future -orientation in advanced economies as it is in emerging ones (entrepreneurial state).

      • China and Indonesia form an own cluster. The public sector there has a special character if one considers its future-orientation (authoritarian state).

      • In the third group we find BRIC countries (Brazil, Russia and India) as well as MINT countries (Mexico, Turkey) completed by Argentina. The only advanced country in this group is Italy.


    Literature
    Literature

    • Hanusch, H. and A. Pyka, “Principles of Neo-Schumpeterian Economics”, in: Cambridge Journal of Economics, 31, 2007a, pp. 275-289

    • Hanusch, H. and A. Pyka, (eds.), Elgar Companion to Neo-Schumpeterian Economics, Edward Elgar, Cheltenham UK, 2007b

    • Hanusch, H., „Fighting the Crisis: Public SectorGovernance in a Comprehensive Neo-Schumpeterian System“, in: Homo Oeconomicus, Vol. 27 no. 1/2 (2010) pp. 89-104


    Literature1
    Literature

    • Porter, M. and Stern, S. (2004) Ranking National Innovative Capacity: Findings from the National Innovative Capacity Index, in: The Global Competitive Report 2003-2004, New York, Oxford University Press

    • Sharma, R., BreakoutNations, In Pursuit of the Next EconomicMiracles, W. W. Norton & Company Inc. New York, London.

    • Vestergaard, J. (2011), The G 20 andBeyond. TowardsEffective Global EconomicGovernments, DIIS Report 2011:04


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