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Coping with the Economic Future Turkey's Position in the G-19 Country Group

Coping with the Economic Future Turkey's Position in the G-19 Country Group. Horst Hanusch University of Augsburg, Augsburg Email: horst.hanusch@wiwi.uni-augsburg.de Yasushi Hara Hitotsubashi University, Tokyo Email: Yasushi.Hara1982@gmail.com Izmir, June 10, 2014. Contents.

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Coping with the Economic Future Turkey's Position in the G-19 Country Group

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  1. Copingwith the EconomicFutureTurkey'sPosition in the G-19 Country Group Horst Hanusch University of Augsburg, Augsburg Email: horst.hanusch@wiwi.uni-augsburg.de Yasushi Hara Hitotsubashi University, Tokyo Email: Yasushi.Hara1982@gmail.com Izmir, June 10, 2014

  2. Contents • Introductoryremarks • Goals of the study • Variety of growthmodels • Future-orientation in the concept of CNSE • Empiricalanalysis • Empiricalresults • Conclusions • Literature

  3. 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

  4. 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)

  5. 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

  6. 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

  7. 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

  8. 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

  9. 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

  10. 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

  11. 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)

  12. 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

  13. 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

  14. 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)

  15. 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

  16. 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

  17. 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

  18. 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

  19. 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:

  20. Growth path of catch-upmodels in Neo-SchumpeterianCorridor system success Growth path

  21. 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)

  22. 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

  23. 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

  24. Variety of growthmodels (16) Growth ordevelopmentpathfor M3, M4, M5 The growthordevelopmentpathfor the models M3, M4 and M5 canbepicturedas the following:

  25. Growth path of Schumpeterianmodelsin Neo-SchumpeterianCorridor • System transformation • Structuralshift Growth path

  26. 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

  27. Institutional Setting in CNSE Development (Co-Evolutionary) Public Sector Finance Industry Orientation towards the Future: Uncertainty -> Institutionallyevendistributed

  28. 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

  29. 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?

  30. 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

  31. 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

  32. 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)

  33. 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

  34. 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

  35. 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)

  36. 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

  37. 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

  38. 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

  39. 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

  40. Indicator Set for Real Sector Pillar

  41. Indicator Set for Finance Sector Pillar

  42. Indicator Set for Public Sector Pillar

  43. 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

  44. 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

  45. 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

  46. 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

  47. 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

  48. 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.

  49. 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.

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