Author Archives: Erik

About Erik

Assistant professor at SITE, Stockholm School of Economics.

Asset prices and Turkey’s revised GDP growth

A curious aspect of the new GDP series (which I’ve covered here, here, and here) coming out of Turkey is the divergence between GDP growth and the stock market. Whereas official GDP statistics shows higher growth during the 2010-2015 period than the preceding six years 2004-2009, the opposite is true for the Turkish stock market.

This can be seen from the data series published by Turkstat called “The Rates of Financial Investment Real Profits’, which tracks the real returns of not just an investment in the flagship BIST100 equity index of the Borsa Istanbul, but also investments in US dollars, the Euro, Gold, Government debt, as well as bank deposits.

The below graph shows real (inflation-adjusted) return indices for all of these asset classes between January 2004 to January 2017, with the base month set to January 2010.


returns_ts

Whereas in the per-2010 period, equities was the asset class that yielded the highest return (the blue line has the lowest starting point among the series and thus the highest increase up until the base month in January 2010), in the post-2010 period it had the lowest return (the blue line has the lowest end point of all the series). Continue reading

Will the Real Real GDP in Turkey please stand up?

In the previous two posts on Turkey’s revised GDP statistics I showed 1) how revised GDP growth numbers diverge from the older version after 2009, 2) the importance of construction investments,  and 3) how standard policy variables failed to explain the revised growth figures.

Especially the previous post used cross-sectional data to show that global relationships between policy variables failed to predict Turkish GDP growth. In this post I will take a more direct approach at trying to validate the new official GDP statistics using time-series variation in Turkey. To the extent that Turkey’s revised GDP numbers reflect variation in economic output, there ought to be alternative measures of real output varying in a similar fashion.

One option would be to compare Turkey’s GDP growth with that of a standard leading indicator like industrial production (IP) or retail sales, all three which are published by the Turkish Statistical Institute (Turkstat). Yet the point of the revision appears to have been to improve statistical collection capabilities by using expanded administrative record of firm activity and so on. In this case, any difference between such a series and GDP data could simply reflect differences between recently revised statistics and soon-to-be revised statistics. It is therefore preferable to seek measures of economic output that are less sensitive to changes in Turkstat’s statistical capacity.

The recent debate over the quality of GDP statistics in China is the starting point here. Leaked Wikileaks cables from 2007 showed the now premier of the state council suggesting three alternative measures of economic output instead of the official GDP data: electricity, rail freight volume, and bank loans. Below I make some adjustments to this in order to incorporate factors more specific to the Turkish growth model.

Continue reading

Is New Turkey’s Growth Model From Outer Space?

The previous post focused the extent to which Turkey’s revised GDP data changed the recent history of economic growth in Turkey. A particularly striking fact of the new series is how much higher the growth rate in GDP in Turkey has been ever since the global financial crisis in 2008/2009. Of interest is then also how this changes Turkey’s economic performance in a comparative sense internationally, both in terms of economic growth as well as key economic indicators.

In this blog post, I take as the basis of economic performance the change in real GDP per capita obtained from the most recent October 2016 World Economic Outlook (WEO) from the IMF. For most of it I will show how this measure of economic growth – in two periods of six-year-averages for 2004-2009 and 2010-2015 respectively – correlates with a selected number of key economic indicators, most of which are included in the WEO database, and how much of Turkey’s (and other countries’) growth can be explained by a relatively simple regression model including a number of indicators of interest.

These indicators are: the natural logarithm of the average GDP per capita during the preceding six-year period, the natural logarithm of the average of population size during the preceding six-year period, the average growth rate in GDP per capita during the preceding six-year period, the current account balance as a % of GDP, the CPI inflation rate, the investment rate as a % of GDP, government debt as a % of GDP, and the unemployment rate. In addition, I also draw on the World Development Indicators database from the World Bank for labor force participation rate, domestic credit  to the private sector as a % of GDP, the age-dependency ratio, the urbanization rate, and from the IMF’s Balance of Payments database I also add the net international investment position (NIIP) as a % of GDP. For the investment rate, private credit, urbanization, and the NIIP-to-GDP measures, I also include a change variable with each measured as the change between the average during one six-year period and the corresponding average of the preceding six-year period. The IMF WEO indicators are quite standard and hopefully require little introduction. Most of added variables from the WDI are a bit Turkey-specific as they will show Turkey’s comparatively low labor force participation rate, the rapid growth of private credit in the economy, and the change in urbanization serving as a proxy for factor that could drive some of the large construction investments apparent in the new revised GDP series for Turkey. Continue reading

Constructing growth in New Turkey


The Turkish Statistical Institute recently released a revision to its GDP series (here and here), with some noteworthy consequences. Not only did the new series produce an upward revision of the level of GDP by around 20 percent (for GDP in 2015), but equally striking is the upward revision in the real growth rate of GDP after 2009 by an average of 1.8 % per year. The quarterly data is plotted below for new and old GDP and GDP growth rates (year-on-year) respectively.
growth

The new statistics revision, taken at face value, arguably boost “the president’s economic arguments”, putting Turkey’s economy in a kinder light than previously thought. The timing is auspicious, as the government will likely try to revamp the constitution during the coming year.

The changes to Turkey’s GDP and growth rates are very large ones not only from an absolute perspective, but especially so in comparison with other cases of ESA (European standards) or SNA (United Nations standards) revisions. In OECD countries, such revisions have tended to have much smaller impacts on the levels of GDP and, at least on average, close-to zero effects on GDP growth. In most of these other cases, large revisions tend to be driven mostly by the changes in standards themselves, although in some of them, wider changes in how statistics are collected were more dominant. Continue reading

Picking Regional Winners and Losers in New Turkey

The Turkish Statistical Agency recently published a revised set of Gross Domestic Product (GDP) series, with some rather striking consequences for Turkey’s economy.

One less covered aspect of the new publication is the accompanying data on province-level GDP for the period 2004-2014. This is a welcome addition to students of Turkey, and I couldn’t help taking a look at it.

There are several interesting aspects of the Turkish economy that manifest itself in the data, such as the provinces of Istanbul and Kocaeli (the commercial and manufacturing centers of Turkey respectively) having US dollar GDP per capita levels in 2014 roughly similar to that of Saudi Arabia. Turkey’s economic output is also very heavily concentrated in the four largest provinces, Istanbul, Ankara, Izmir, and Bursa, which together account for almost exactly half of Turkey’s 2014 GDP, as can be seen below.  
cumulative

As for the evolution of GDP per capita over time, the below graph plots the province-level values (deflated by the World Bank’s GDP deflator) indexed to their corresponding 2004 values. Interestingly, Kocaeli, has preformed rather well, whereas Ankara has growth the second-slowest of all provinces. Continue reading

A few comments on democracy indices and Turkey

I am grateful to the feedback on my previous post, whether it has been in public or in private.

I think of the V-Dem data as an important contribution to how social scientists can measure institutions, and democracy in particular. I do, however, have some thoughts on the V-Dem data and the main other datasets on the same topic as well.

As for the specific time series for liberal democracy in Turkey, one thing that struck me as particularly interesting (and something many others have commented on as well) is the relatively positive trend during most of the 1990s, especially the later part. Given my priors (and many others’) this at first seemed rather counterintuitive. The 1990s were, after all, a period of significant political instability, plagued by recurring economic crises and violent conflicts. How is it possible that a measure of liberal democracy can be increasing during such a period? Continue reading

The Reversal of (What Little) Liberal Democracy (There Ever Was) in Turkey

Earlier this year, the University of Gothenburg’s V-Dem institute released a new database on democracy. As it turns out, this database yields some new insights on the timing of Turkey’s democratic erosion, a topic I’ve previously covered (herehere, here, here, here, and here).

Here’s how Staffan Lindberg, the director of the V-Dem Institute, described the database to the Washington Post:

“Varieties of Democracy (V-Dem) represents a novel approach to measuring democracy. It is based on collaboration among leading scholars across the world and has two institutional homes: the V-Dem Institute at the University of Gothenburg in Sweden, which also functions as the operational headquarters for the project’s many parts, and the University of Notre Dame in the United States. V-Dem differs from previous datasets by distinguishing among different principles of democracy (as discussed) and offering about 350 unique democracy indicators, 34 indices of various aspects of democracy such as freedom of association, and five main democracy indices for Electoral, Liberal, Participatory, Deliberative, and Egalitarian democracy. These all cover 173 countries, measured annually from 1900 to 2012.”

Frankly, as a political economist (and all-out data nerd, for that matter) I have trouble expressing how exciting this is.

Of particular interest is the measure of liberal democracy, a topic of significant focus both globally (here, here) and specifically for Turkey (see here and here), but I’ll show graphs for the other main components of the V-Dem data as well.

Readers of this blog and my other work will be familiar with my skepticism of the prevailing narrative of the timing of and character of Turkey’s democratic erosion. As I wrote in a recent blog post:

“Given recent crackdowns on freedoms in Turkey, it might be useful with some perspective. Some in the media still seem to be pushing the talking point that Turkey’s “true oppression” began in 2013 after a corruption scandal, contrasting this period with that when AKP was a “beacon of light”, when Turkey was a “vibrant democracy”, and when “Erdoğan’s Turkey” was on the “right path.” Accepting this narrative is a convenient exit for analysts who have overestimated the degree to which Turkey’s democracy was improving during the last decade.”

As it turns out, the data recently provided by V-Dem has something to say about this. Continue reading