This paper addresses the sustainability of Turkeys current-account position by emphasizing household consumption and exports. It highlights Turkeys comparatively high consumption expenditure as a share of GDP, much of which credit financed over the past few years, and the significant increase in the contribution of developing countries, including Turkey, to global economic growth, but shows that these features have been accompanied by the accumulation of large global current-account imbalances. The paper employs GTAP-simulations to analyse the frequently made recommendation that slower consumer demand growth and a durable improvement in the price competitiveness of exports are the key to improving the sustainability of Turkeys external accounts. It argues that demand growth on Turkeys traditional export markets, especially the Euro area, is likely to remain subdued for a protracted period of time and cannot be expected to generate expansionary impulses for other countries exports. The paper concludes that diversifying the destination markets of Turkeys exports towards rapidly growing developing countries will require product innovation with a view to meeting these countries consumer preferences, which are likely to differ from those in Turkeys traditional high-income markets.
Key words: Turkish Economy, Balance-of-Payments Constraint, Consumer Demand, GTAP-Simulations. JEL Classification: O11, D12, F14, O33. Article Language: EnglishTurkish
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