Sustaining growth in emerging markets: the role of structural and monetary policies
Ahmet Faruk Aysan, Mustafa Haluk Guler and Cuneyt Orman
The contribution of emerging market economies to world output increased significantly in the 2000s. According to an HSBC report (Ward, 2012), emerging market economies now account for roughly 50 per cent of world output, up from about 35 per cent in 2000. While the global financial crisis of 2008 sharply reduced economic growth rates worldwide, the slowdown in emerging market economies has been substantially less than that observed in advanced economies, and the emerging market economies have also been the main drivers of growth in the subsequent recovery (see Figure 9.1). The most recent Organisation for Economic Co-operation and Development (OECD) ‘Going for Growth’ report projects that the emerging market economies will continue to be the drivers of global growth until 2060, with major consequences for the composition of the world economy.1
Despite their perceived favourable growth prospects and increasing importance in the global economic landscape, however, emerging market economies face a number of institutional and structural challenges that may pose risks to the sustainability of their high growth performance. Some of the institutional difficulties have historically been, and to varying degrees for different countries, continue to be, the presence of weak democracies, opaque government policies, and populist cycles aiming to maximize short-term objectives. The main structural challenges, on the other hand, have typically been the unsustainably high levels of public debt, high and chronic inflation, and shallow and under-regulated financial sectors. Fortunately, there has been tremendous progress in several emerging market economies along both dimensions in the recent decades, with desirable outcomes. Nevertheless, the emerging market economies
Figure 9.1 Global growth rates (annual change, %)
still have a long way to go in ensuring that the recent progress can be carried into the future. In particular, the ability of the emerging market economies to sustain the high levels of growth rates they have attained in the recent past is closely linked with their ability to deal ably with the above-mentioned institutional and structural challenges.
This chapter aims to portray the experience of Turkey in addressing these institutional and structural changes since the 1990s. To this end, section 9.2 provides a detailed account of Turkey’s experience in recent years. Section 9.3 then compares and contrasts the recent experience of Turkey with the experiences of peer emerging market economies in the Central, Eastern and South-Eastern Europe (CESEE) region to assess the relative performance of Turkey. Section 9.4 provides our concluding remarks.