Category Archives: turkey

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.

For starters, rail is not the dominant mode of transportation. And electricity is but one source of energy. Therefore, it makes sense to further include total energy consumption and to focus on total inland freight (which would also include road and sea freight). Emissions of carbon dioxide is another potentially industry-relevant predictor. And finally, in addition to the credit used to financed these investments, I’ll also include construction permits, both as a measure of construction activity as well as a leading indicator for economic output.

The rationale underlying the choice of the above measures is the following: Turkey’s higher growth numbers have been bolstered by construction investments (on the expenditure side) and both industry as well as construction output on the production side. Consequently, new infrastructure or buildings – evidenced by more construction permits – ought to require increased energy use as well as moving goods and workers from one place to another. The associated economic activity (the actual construction process as well as any following activity in the completed investment projects) should simultaneously also result in higher emissions of greenhouse gases.

For this blog post, I employ mainly  the following eight variables (mostly in the form of growth rates):

  1. Industrial production index: not because it fits the purpose very well, as explained above, more as a reference to start with. The data is from Turkstat, available here.
  2. Primary Energy Consumption, in million tonnes of oil equivalent (mtoe), from the BP Statistical Energy Review.
  3. Electricity generation, in terrawatt-hours (TWh), from the BP Statistical Energy Review.
  4. Carbon dioxide emissions, in million tonnes, from the BP Statistical Energy Review.
  5. Total inland passenger traffic, in million passenger-kilometers, from OECD.
  6. Total inland freight, in million tonnes-kilometers, form OECD.
  7. Total bank loans, in CPI-deflated Turkish lira, from the Central Bank of Turkey
  8. Construction permits, in CPI-deflated Turkish lira, from Turkstat

At first, we would like to make sure the above variables are able to predict any of the Turkish GDP growth before 2010 – the breakpoint after which the new and old GDP series diverge.

 

predictions
The panels are ordered by how well they predict annual growth in Turkish GDP. IP has the highest R-squared at roughly 0.9 – unsurprising, as it’s likely drawn from very similar data as GDP and so less useful for my purposes here. Still, both energy use and electricity consumption predict a significant share  – 63 and 50 percent respectively – of the variation in growth. Interestingly, the worst predictor is inland freight. 

That said, overall these variables appear to do a fairly decent job of predicting real GDP growth. So how have they fared when comparing their growth rates during the periods 2004-2009 and 2010-2015, i.e. the two six-year periods before and after 2009/2010 in Turkey which I focused on in the previous post?

Below, I show how the growth rates from the energy-related outcomes stacks up against GDP growth (again, this is all Turkey-only data):

energy

In the earlier period, most energy measures appear to grow at roughly the same rate per year as real GDP (although electricity generation is 1.2-1.5 percentage points higher). In the later period, although new and old series of real Turkish GDP both grow faster than the energy-related measures, it’s really the new GDP series that stands out, with a growth rate between 2.5-4.1 percentage points higher than the other measures. Most energy growth measures are also lower in the later period which would suggest lower, not higher, GDP growth in 2010-2015 compared to 2004-2009.

Thus, compared to the measures that explain the most of the variation in Turkish GDP (bar the IP measure), Turkey’s reported GDP growth is significantly higher than what alternative industry-related measures suggest. This is awkward, as we would expect extensive investments in construction to be more visible in these measures. It’s hard to believe that Turkey has undergone substantial energy efficiency to explain the difference in growth rates, especially when its annual power transmission losses as a share of output has remained at roughly 60-70% higher than the average among upper middle income countries. There has been some uptick in the use of renewable energy in Turkey, but it’s doubtful that this would have expanded as quickly as construction activity in the most recent years.

Below, I show the growth rates for freight and passenger transport.

freight

This shows largely the same picture as the energy measures, with real GDP growing neck-to-neck with both freight and passenger traffic in 2004-2009 only to diverge substantially in the period 2010-2015.

The comparison with bank loans and construction permits below shows different levels to start with (these two have grown much faster than GDP in both periods) but in both cases their growth rates are nonetheless lower in the later period where revised GDP growth, in contrast, is much higher. This is also rather odd. We would have expected higher credit growth and higher growth in construction permits to be associated with higher real GDP growth, not the opposite.

others

Comparing these series to GDP growth one-by-one is illustrative to some extent but we might also want to use them to simultaneously predict what GDP growth ought to be.

For this purpose I first regress annual real GDP growth on annual growth rates for a subset of the above measures during the period 1981-2009: the first model includes, on the right-hand side, annual growth rates in primary energy consumption and electricity generation (as well as the natural logarithms of their values); the second model adds the growth rate and log level of bank loans; and the third model further adds the growth and log level of construction permits.  Omitted from this regression are the freight and passenger as well as the carbon dioxide measures, as it turns out that these have very little value in predicting GDP growth ones the other measures are included. (Including them changes nothing, it just eats additional degrees of freedom). The three models explain (have R-square values of) around 73, 82, and 83 % of the variation in GDP growth respectively during 1981-2009 (regression output is here).

I then use this model to predict out-of-sample Turkey’s GDP growth rate in the years 2010-2015 respectively. The average growth rates for the official data as well as those predicted from the three models are shown below.

predicty

Unsurprisingly, the model does a good job of predicting GDP growth during 2004-2009, but more interesting is that these composite regression models predict much lower growth rates than indicated by the new GDP figures from Turkstat. The three different models predict Turkey growing at around 4.1-7.5 percentage points lower than the most recent official series. In particular, the third model predicts Turkey’s GDP remaining entirely stagnant at on average zero growth between 2010-2015.

Curiously, in the previous post, the policy model I estimated predicted Turkey’s growth in GDP (per capita) to be roughly 4.5 percentage points lower than the revised official data. Thus, two very different methods of predicting growth in Turkish economic output suggest significantly lower growth rates than official data indicates.

Perhaps there are other measures of economic activity than the ones I have included that do a better job at explaining why the recently revised real GDP statistics coming out of Turkey shows such high growth rates during recent years. Yet even if there are such variables, it is rather odd that a Turkey’s phenomenal on-paper transformation from ‘Lounging House Cat’ to ‘Roaring Tiger’ cannot be discerned in commensurate growth dynamics with regards to energy consumption, carbon dioxide emissions, freight, passenger traffic, bank loans, or construction permits. Specifically, the former four tend to trace the old series’ lower GDP growth rates rather closely, and the latter two exhibit higher growth rates when GDP growth is lower and vice versa. Altogether, these variables predict GDP growth rates that are far below that of the official releases. At the very least, this ought raises some serious issues about the sustainability of economic growth in Turkey.

In conclusion, I have but one question: Will the real real GDP in Turkey please stand up?

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

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

Has the AKP facilitated cronyism through public procurement reforms in Turkey?

This year will mark the three-year anniversary of the Gezi protests which swept across most of Turkey during the summer of 2013. Many things contributed to the protests, but a major a factor in galvanizing such a large segment of the population was undeniably widespread view of severe government overreach in how it used construction to remodel Turkey’s urban landscape after its own design. Several of the so-called ‘crazy projects’ have not only laid bare the degree of government control over construction projects but also that the winners of public procurement projects typically constitute a relatively new niche of business entrepreneurs with strong connections to the AKP. Moreover, it also points to the public procurement sector – and in particular the role of state discretion therein – as the main instrument for this phenomenon.

Today, there are a number of sources pointing to the degree of political connections of public procurement winners in Turkey; ranging from the data visualizations of Mülksüzleştirme Ağları) to rich descriptions of how the political connections of public procurement winners have changed over time in parallell with legal reform giving the government greater say in allocation of contracts. Examples of these include a recent book by Ayğse Buğra and Osman Savaşkan qw well as a forthcoming book by Esra Gürakar (quoted here in the Economist). There are also several informative longer news articles (for example, here, here, and here) on the topic. With the resurgence of conflict in the southeast of Turkey, there are some concern that the Turkish government would confiscate conflict-torn land for the purpose of urban transformation, a process that might very well see government-linked firms gaining most of the contracts.

This begs the question to what extent the increase in AKP-connected firms winning procurement projects is also due to AKP’s changes in the procurement law? Moreover, has this had any economic consequences?

In order to shed light on this, Esra Gurakar and myself have a new paper looking at the effect of state discretion in construction public procurement. Here’s the abstract:

“We investigate whether increased state discretion in public procurement auctions affect economic costs and facilitate favoritism using data from the Turkish construction sector between 2005-2011. After parliament passed a legal amendment to the existing procurement law in 2008, construction auction projects with an estimated cost above a specific threshold became eligible for an auction procedure giving the contracting authority greater control over participating bidders through so-called restricted auctions. Using several identification strategies including difference-in-differences, instrumental variables, and regression discontinuity design, we find that increased discretion in public procurement not only increased costs – in terms of both the winning bid and rebate value – but also increased the likelihood of the winning firm being politically connected to the ruling AKP. Moreover, our analysis further shows that among varying forms of political connections to the AKP, the increased costs are particularly driven by winning firms connected to the two most powerful elites within the AKP during this period, namely individuals in the top political leadership as well as those affiliated with the Gülen movement.”

A noteworthy component here is that the main policy shift we examine occurred back in 2008, around the time when most observers were more focused on portraying the country as a model of Muslim democracy than really trying to understand how reforms were serving to shift power from one poorly accountable center to another.

Continue reading

Turkey’s Instruments of Repression and Declining Press Freedom

In the last post, I found that several Freedom House measures of basic freedoms have been deteriorating in Turkey for a long time, especially when it comes to freedom of expression.  Freedom House (hereby FH) also publishes specific measures of freedoms of the press (data available here), a component of the freedom of expression & beliefs score used previously. Similar to the Freedom of the World publication, FH use subscores to calculate aggregate press freedom scores that are then divided into three statuses, Not Free, Partly Free, and Free. And like the Freedom of the World status, Turkey’s press freedom status has been constant at Partly Free since 2005, only becoming Not Free in 2013 and thereafter.

There are three subscores for press freedom:

  1. A legal environment category focusing on the laws and regulations influencing media content and the government’s inclination to use these laws and legal institutions to restrict the media’s ability to operate:  legal and constitutional guarantees for freedom of expression; the potentially negative aspects of security legislation, the penal code, and other criminal statutes; penalties for libel and defamation; the existence of and ability to use freedom of information legislation; the independence of the judiciary and of official media regulatory bodies
  2. A political environment category, evaluating the degree of political control over the content of news media including editorial independence, access to information and sources; official censorship and self-censorship etc.
  3. An economic environment category. This includes the structure of media ownership; transparency and concentration of ownership; the costs of establishing media as well as any impediments to news production and distribution; the selective withholding of advertising or subsidies by the state or other actors; the impact of corruption and bribery on content; and the extent to which the economic situation in a country impacts the development and sustainability of the media.

In the below graph I show the combined press freedom score for Turkey, as well as its subscores for the legal, political, and economic environments. For the sake of brevity here, the focus is on percentile ranks and Turkey’s performance relative to the world distribution, with higher percentiles implying more freedoms.

fopscores

The above graph shows a total Freedom of the Press score for Turkey that is stagnant up until 2009 and then starts to slide downwards. The legal environment subscore has been falling consistently since 2005 when it began around the 40th percentile. (This matches the timing of changes to the Turkish penal code, which according to analysts, made prosecuting journalists easier. (See for example here) In 2014, it had fallen to the 16th percentile, an absolutely abysmal deterioration. The political environment subscore was rising somewhat until 2008, and has been decreasing afterwards, from around hovering around the median country in the world to the 22nd percentile. The economic environment subscore has remained largely constant up until 2012, followed by a smaller, but not insignificant, ten-percentile drop.

To illustrate the enormous freedom deficit in terms of the legal pressures on Turkish media the below figure shows the score for the legal environment for press against the Political Rights score in 2005 and 2014, similar to the previous post, with green dots indicating an autocracy and blue dots indicating a Freedom-House-defined electoral democracy: 
reggr_fop_a

Strikingly, legal pressures on Turkey’s media have increased to the point where its 2014 value is equal to that of the median autocracy in the world. In fact, in 2014 there was not a single electoral democracy in the world that had a worse legal environment for the press than Turkey.

Overall, Turkey’s international standing in terms of freedom of the press, as measured by Freedom House, has been decreasing substantially for a decade, driven by legal reforms allowing persecution of representatives of the media, followed by increased political pressure for censorship, and eventually an increase in economic pressures on the media. Along several dimensions, the larger share of this deterioration occurred before 2013.

Noteworthy from the first figure above is the extent to which legal pressures have led political pressures on the media in Turkey. In other words, the capacity for arbitrarily denying freedoms existed long before the government gained extensive control over it. And so one reason why early reforms increasing the judiciary’s ability to use anti-terror legislation against speech (something human rights organizations have repeatedly criticized the government for) has been so damaging is not simply that it allowed the judiciary to impinge on media freedoms, but that it may subsequently have become too powerful a tool for the government not to seek control over it. The power of these special courts manifested itself clearly during the Balyoz, Ergenekon, the KCK trials; both in the arbitrary nature of the arrests as well as the degree to which much evidence was fabricated. The political motivations behind arrests of Kurdish politicians and journalists following the AKP’s 2009 election setbacks in the southeast – stifling AKP’s attempts at conquering the Kurdish vote – are one example, the ludicrous arrests of two journalists involved in writing a critical book about the Gülen movement is another.

These trials may have been described as a democratic cleansing of Turkey’s deep state and terrorism, but in implementation they quickly turned into blatant witch hunts to settle political issues that should have resolved by the public democratically, not by political elites in the courtrooms. (The number of imprisoned journalists in Turkey today are still dwarfed by the numbers from 2012 still dwarf those imprisoned today. As a rule, the overwhelming majority of imprisoned journalists tend to be Kurds.)

Politically embarrassing leaked recordings and other incriminating documents found its way from what must have been surveillance units within the security establishment to select newspapers, often those affiliated with the Gülen movement.

The combination of an overpowered judiciary and segments of the media willing to engage in character assassinations, to “eat their own”, and publish manufactured news is an old characteristic of Turkish public discourse (the latter not unique to any specific segment of the media). A key difference in the events of 2011-2013, is that when the cold war between two political elites burst out into the open, it was the government that won the first battle. In the past, it has often been the opposite case.

Herein lies a common misinterpretation of Turkey’s institutional problems to date. It is not simply the concentration of power under the Erdoğan regime that is the problem, but rather the marriage between it and the preexisting overpowered mechanisms for denying freedoms. And so to take stock of how low Turkey has fallen in terms of basic freedoms requires the realization that much of the groundwork already existed long before 2013. What changed was the unprecedented political discretion over instruments of repression previously forged during a period when naïve analysts thought Turkey represented some kind of model reformer.