There has been much discussion in Turkey in recent days about the performance of the economy under the AKP government, occasioned in part by an exchange I had with Minister of Finance Mehmet Şimşek.
The Turkish government likes to claim that the GDP expanded by more than three-fold between 2002 and 2012. This is a misleading number, as it is based on the dollar valuation of Turkish GDP at current prices, and hence lumps both dollar inflation and the real appreciation of the Turkish lira on top of real growth. Calculated properly, real GDP (or GDP at constant prices) rose by 64 percent during 2002-2012, and real GDP per capita by 43 percent.*
This is not a bad record of growth. An increase of 43 percent in income per capita over a decade implies an annual growth rate of 3.6 percent. This is a performance that matches that of Turkey’s previous high-growth period (1960-78) and exceeds anything experienced since.
In 2002, Turkey was just coming out of a severe financial crisis, so there is a case to be made that any growth calculation that takes 2002 as the base year mixes up real growth with the bounce back from the crisis. There is also the question of sustainability, as growth has been fuelled by large current account deficits in the recent period. I will not elaborate on these issues in the present discussion. (See here for a more analytical look at Turkey’s recent growth experience.)
However, an important issue that is frequently overlooked is the conjunctural and comparative dimension. The last decade has been an exceptionally good one for developing countries as a whole. When Turkey’s performance is compared to the average for emerging and developing countries, it hardly looks distinguished. This can be seen from the figure below.
Source: Conference Board database
The figure shows that Turkish performance lagged significantly behind emerging and developing economies as a group. In the latter, real GDP rose by 95% compared to Turkey’s 64%. Real GDP in large emerging markets such as China, India, Bangladesh, and Indonesia all grew more rapidly than Turkey, as it did in many smaller African and Latin American countries.
Turkey’s rank in global GDP tables improved slightly over the decade. In purchasing-power adjusted terms, Turkey went from 17th to 16th in global GDP rankings (surpassing Australia). Measured at current exchange rates, it rose from 21st to 17th (surpassing Taiwan, Switzerland, Belgium, Netherlands, Sweden, but falling behind Indonesia). (Note that comparisons of rankings over time using current dollars can be misleading for the same reason noted above, namely movements in real exchange rates.)
Bottom line: Turkey did well relative to advanced countries, and closed the income gap with them. But its performance benchmarked against the most relevant comparators, emerging and developing countries, was not distinguished.
*For Turkish readers, there are good accounts of real-nominal measurement issues by Ege Cansen, Ugur Gurses, and Aykut Kibritcioglu. Also, a technical digression may be useful here. A real appreciation of the curency may reflect an external terms of trade improvement. In that case, it would represent a gain in the purchasing power of domestic output. However, there has not been a trend improvement in Turkey's terms of trade over the 2002-2012 period. Turkish real appreciation has little relation to the changes in its terms of trade, and seems to be driven largely by changes in domestic relative prices (nontradables versus tradables.)