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• Basic statistics of Turkey, 2015
• Executive summary
• Assessment and recommendations
• Progress in key structural reforms

  This Annex reviews the measures taken since 2014 in response to key recommendations from OECD Economic Surveys (recommendations identified as ES, year) and OECD Economic Policy Reform – Going for Growth (identified as GfG, year).

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  • Rebalancing growth by strengthening the manufacturing sector

    Turkey’s manufacturing sector has expanded considerably but not efficiently and competitively enough. This chapter documents the drivers of its recent growth and diversification, and the factors that have held it back. It documents its segmentation and the outsized tail of poorly performing firms, which undermines aggregate productivity growth. Low productivity eases job creation in the short term, but undermines it in the long run and holds back improvements in living standards because of competitiveness losses. A core of well-performing firms (frontier firms) is not growing at full potential because of shortcomings in the policy framework. Intermediary (follower) firms sustain competition and deliver jobs, but tend to fall behind in productivity. Lower productivity units (laggards), which employ a large share of the low-skilled majority of the working age population, survive mostly thanks to the incomplete enforcement of rules and regulations. The resulting stalemate requires a coherent strategy of systemic upgrading of the business environment. This would enable all firms to operate in compliance with the law and on a level-playing field, under supportive regulations, taxation and innovation incentives. All firms could then achieve stronger productivity gains and the most promising firms could grow faster. At the same time, a credible flexicurity system needs to be put in place that facilitates adjustment in the labour market while protecting those affected by structural change.

  • Reaping the benefits of global value chains

    Despite major progress, Turkey still lags behind most comparable countries in terms of exported value added per capita. Its remarkable economic performance over the past 15 years has not been sufficiently backed by gains in export market shares, in particular when measured in value added terms. While Turkey incorporates an increasing share of foreign value added in its own exports, its capacity to provide intermediate inputs to other countries’ exports is still limited. This chapter argues that Turkey’s participation in global value chains remains below potential owing to institutional features that hamper efficient allocation of capital and labour, obstacles inherent in bilateral trade agreements and entry regulations, underdeveloped human capital and insufficient investment in innovation, R&D and knowledge-based capital. Progress along these dimensions would strengthen Turkey’s backward and forward trade linkages and contribute to rebalancing its growth model. The adjustment process towards a more export-oriented economy operating on a level playing field needs to be flanked by dedicated industrial, social and environmental policies to alleviate adverse consequences on displaced firms and workers and the ecosystem.   

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  • Methodology for the overview figures

    The Survey includes a number of figures plotting Turkey’s position with respect to a range of economic and social environment indicators, in comparison to the top three OECD performers, to other catching-up OECD economies, and to the best three performers among the latter. They highlight the room available for convergence with OECD best practices (Figures 18-21, and Panel B of Figure 3).

  • Sector definitions

    ISIC Rev. 3 code

  • Backward participation by source and exporting sector

    Input-Output table of foreign value added embodied in Turkey’s exports (shares in %). Rows show foreign source sector, columns show Turkish exporting sector.

  • Forward participation by source and exporting sector

    Input-Output table of Turkish value added embodied in foreign countries’ exports (shares in %). Rows show Turkish source sector, columns show foreign exporting sector.

  • Network visualisation maps

    The following network maps are based on bilateral trade in value-added flows. The visualisation of similarities technique (VOS, see Waltman et al., 2010) locates countries in such a way that the distance between any two countries reflects their relative trade-connectedness. The underlying mapping approach boils down to minimising the sum of squared distances weighted by relative bilateral trade flows subject to a given average distance between countries. The size of circles is proportional to the countries’ trade volume. Colours indicate clusters.

  • Drivers of GVC participation – an econometric assessment

    Backward and forward participation indices suffer from an identification problem since potential drivers for GVC integration affect both the numerator and the denominator. Against this background, the subsequent analysis builds on per capita domestic value added, forwarded value added (that is the domestic value added that ultimately serves as input to foreign countries’ exports) and backward-sourced value added (that is foreign value added contained in domestic gross exports), as dependent variables. In accordance with available data points annualised growth rates of the dependent variable are calculated over a total of 4 windows (1995-00, 2000-05, 2005-08, 2008-11):

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