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Turkish economy at a new stage of integration into the global economy: toward a synthesis and the challenges ahead

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Şenes, Fikret

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English

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Introduction Looking at the past two decades of Turkish economic performance, four events emerge as being of primary importance. The first of these is the capital account liberalization in 1989. This decision has opened a new era of short- term capital inflows into Turkey beyond the control of the government and have in a shallow foreign exchange market introduced a great deal of volatility in exchange rates and often meant high real rates of interest rates in the domestic economy. It has also introduced a strong surprise element in economic policy-making which became increasingly subject to the whims and speculative behavior of international investors. The deep financial crises that Turkey experienced in 1994 and 2000-2001 have rightly been attributed in part to such behavior taking advantage of the weakness of macroeconomic fundamentals and the lax regulatory framework in financial markets in the face of the weaknesses of the banking sector. This decision has also made Turkey increasingly vulnerable to financial difficulties elsewhere, as evidenced by the volatility in financial markets in Turkey following the crises in Mexico, Argentina, Brazil and Russia, as well as wider crises such as the Asian crises of 1997 and the current global financial crisis that is simmering since the third quarter of 2008. The second of these important events is the Customs Union with the European Union which came into force in January 1996 which generated profound effects on Turkey’s foreign trade as well as its level of industrial competitiveness. On a somewhat different plane, Turkey’s membership to the World Trade Organization in 1995 was another major event reinforcing the liberalization trends in the Turkish economy while at the same time narrowing the policy space of Turkish governments. The third of these events is the economic crisis which erupted in the first quarter of 2001. Apart from its devastating socioeconomic impact, 1 it opened the way for extensive institutional changes, the most notable of which were the legislative changes to increase central bank independence and the setting up of independent institutions in a variety of spheres.

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Turkey and the Global Economy: Neo-Liberal Restructuring and Integration in the Post-Crisis Era

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Taylor and Francis

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International Relations

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