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Yayın Industrial Policy in Emerging Markets(S & B World Foundation, 2021) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, TanjuThe literature on industrial policy is large. There is no consensus on the necessity or the success of industrial policy. On the one side there are those who believe that government intervention is necessary for economic growth and development. On the other side there are those who consider that government intervention leads to rent-seeking activities because markets are efficient. The establishment of infant industries, knowledge spillovers and scale economies, coordination failures, informational externalities, support of exports and FDI are the main arguments for industrial policy. A general or traditional definition of industrial policy implies that every country has an industrial policy in one form or another. In the past industrial policy played an important role in the development of current advanced economies. This is true also for the recently industrialized economies. However there are failure stories as well as success ones. The counter argument for the success stories is that the market oriented policies might have produced the same results, if not better. Because no counterfactual data are available, it is not possible to reach the correct conclusions. The failures are seen as the result of governments’ mistakes in identifying the appropriate industries given the endowment structure and development level of the economy. Furthermore industrial policies in the form of import substitution, planning, and state ownership produced some success stories, however when they were not adapted to new conditions and did not undergo any progressive change they failed and led to big economic crises in some cases. The industrial policy experience of the East Asian countries are considered as successful, while the Latin American ones are full of failures. The changes that have been taking place in the global economy together with the establishment of WTO which imposed new restrictions on trade policies and subsidies led to what is called the “new” industrial policies. With the Washington Consensus some economies seemed to abandon industrial policies for a period, however gradually they started to return to some form of industrial policy. The new industrial policies focus more on horizontal policies; and they do not carry much ideological content as the traditional ones. In this study the evaluation of industrial policies are done in two stages. For the first stage Brazil, China, Egypt, India, Iran, South Korea, Turkey, and Vietnam are selected. These are some of the countries where industrial policies were implemented at some periods and/or are being implemented. The first stage evaluations are based on the trend analysis of economic indicators such as GDP growth, human development index, economic structural transformation (shares of major sectors in total value added and total employment), economic complexity index, labor productivity, competitiveness index, share of exports of goods and services in GDP, and globalization index. The results suggest that South Korea and China have more successfully utilized industrial policies to achieve these goals of economic growth and structural transformation than the other countries in the sample. For the second stage of evaluation three countries are selected: South Korea as one of the leading example of employment of industrial policies; Brazil as the representative of Latin American economies; and Vietnam as a latecomer to the scene. These economies are analyzed in more detail. The indicators mentioned in the preceding paragraph are evaluated for each period of distinct industrial policy implementations. Thus, it would be possible to see if there is a correlation between the policies and indicators. The determination of these periods is based on the relevant literature. Furthermore, these periods are determined empirically using least squares with breaks. For some indicators and periods a correspondence between the industrial policy and performance are empirically valid. The same is true for the literature based and empirically determined periods, that is, the empirical results support the literature-based determination of periods. The disadvantage of this method is that it may miss the performance which was a result of policies in an earlier period. During the 1960-1973 period, priorities were exports and key sectors were labor-intensive manufacturers in South Korea. On the other hand, main instruments were import tariff protection, export subsidies, tariff-refunds, and subsidized credit and export targeting. The priorities during the 1973-1980, were heavy and chemical industries, with priority sectors steel, petrochemicals, nonferrous metals, shipbuilding, electronics and machinery and priority firms selected large enterprises. In addition to main instruments used during the earlier period, of policy loans to fund priority sectors and firms, and tax credits as investment incentives were also used as main policy instruments. During the 1980-1990 period priorities moved to high technology exports sectors, and small and medium enterprises. Main instruments used during this period were import liberalization, incentives for research and development, direct lending, and removal of restrictions on foreign investment. From 1990, priorities were private sector-led development, competitiveness in international arena. Main instruments were supporting research and development, open capital account, and financial sector reforms. These four periods are used in this study. Brazil roughly represents the Latin American example of industrial policies. During 1950-1980 Brazil experienced high growth rates, increase in productivity and developed a strong manufacturing base. However, it was not possible to continue with those policies which was instrumental in obtaining those developments. The abandonment of industrial policies provided stability and increased Brazil’s integration to the world economy. On the other hand, the manufacturing base got smaller and productivity increases were negligible. During the recent decades various governments introduced industrial policy measures. However, it is early to see the results of these policies. The case of Brazil also shows that macroeconomic policies, institution building, transparency, good governance constitute the background of industrial policies. If this background is not available then industrial policies may fail. Forty-five years ago, Vietnam was a war-torn, centrally planned and predominantly rural country. Its export earnings could barely finance a third of its imports. For the following ten years, its economy muddled through with a heavy dependence on external aid from the former Soviet Union. In 1986, the Communist Party Congress adopted Doi Moi (Economic Renewal), a transition reform program while reiterating the Marxist-Leninist principles of the state. The principal elements of the program were: rural reform and return to private farming, price liberalization, fiscal and monetary reforms, openness to FDI and regulatory relaxation. The collapse of the former Soviet Union in 1989 halted the external assistance leading to a slowdown in growth. The economy recovered thanks to growth in agriculture and starting flow of external finance from western sources. Low wages and openness helped inflows of FDI to prime the manufacturing sector. Since then, Vietnam’s industrial policies have been broad and comprehensive in design, covering not just manufacturing but a broad range of sectors from agriculture to infrastructure and financial services. Vietnam’s route to become an export oriented industrial economy was quick and effective. Essentially, Vietnam mounted itself on global supply chains taking advantage of its low wages and geographical proximity. Attempts to replicate the Vietnamese version of the Korean chaebols, however, failed when the bureaucrat-run large state enterprises could not compete even with heavy protection. Vietnam’s growth rate averaged 6.5 percent a year between 2000 and 2019 while exports of goods and services grew on average by 16 percent a year in current USD terms during the same period. The share of exports which accounted for 54 percent of GDP in 2000, went up to 106 percent of GDP. The share of high technology exports in manufacturing went up from 8 percent in 2008 to over 40 percent in 2018 and the share of ICT goods exports from 5 percent over a third of the total, respectively. Industrial policy was not only confined to manufacturing. Vietnam managed to become a major producer and exporter of coffee and a net exporter of rice. This impressive record, however, came at a price. The financial system has been stressed because credit demands of large SOEs which has crowded out the private sector, in particular, new entrants. Sustainability of the financial system which needs to provide a level field for private sector, including foreign firms and SOEs, will be critical for the continued growth of the economy. While low wages were an important factor in attracting FDI initially, the education and training system fell short of providing the skills demand, hence resulting in a pressure on wages. There are also serious concerns about increasing corruption with the rapid transition the economy is undergoing. The findings suggest that industrial policies in general are successful in promoting growth and structural transformation. The economic development of South Korea is a good example of well-designed and well-implemented industrial policies. On the other hand, the cases of Brazil and Vietnam show that the policies were instrumental in the establishment of an industrial base and integration with the global economy. However, the government, bureaucracy and entrepreneurs were not able to adapt to the changing conditions, and industrial policies lost their effectiveness. Usually, this situation leads to economic downturn and corruption. Brazil and Vietnam lived through these periods.Yayın Economies of Nordic Countries(S & B World Foundation, 2019) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, TanjuThis study is an introduction to Nordic economies. Is there a Nordic model? Are Nordic economies unique? Is Nordic model replicable? There has been a large amount of studies done on these questions. The jury is still out. However it is possible to identify some common characteristics of Nordic economies as well as their differences. They are basically market economies open to the world economy. Finland, Denmark and Sweden are members of EU. Finland is in Eurozone, Denmark is a member of ECU, and Sweden is a member of neither. Norway and Iceland are members of the European Economic Area and European Free Trade Area which give them full access to EU market with little restriction. Social democracy has been historically important in the development of Nordic countries and in the formation of economic and political institutions and traditions. However the basic tenets of the Nordic system are held together by strong institutions of macroeconomic governance, organized working life, and public welfare system which are interconnected through markets and the intervention by stakeholders not by social democracy alone. While social democratic ideology provided the framework for the equity and participation dimension, there are other factors such as the history, traditions and the advantages of being homogenous small countries which have made the system work. The political pendulum swung between left-leaning governments and conservatives several times in the four large Nordic countries, but they remained as the countries with the highest union density and collective bargaining rates in Europe. Even Iceland which has had conservative governments for extended periods has continued to maintain its traditional structure of collective bargaining and tripartite cooperation with the government. The economic liberalization of the 1980s and 1990s was not accompanied by dismantling the labor relations or the welfare state. Examination of historical data shows some interesting findings. Statistical analysis of pooled data on 167 countries for the 1600-2016 period shows that both the starting level and the rate of increase of per capita real GDP are higher in Nordic countries than in other countries. More recent period of 1950-2016 shows slightly different results. For example, the average rate of increase in real GDP per capita was statistically higher for Nordic countries, at a 95% level of confidence, but not with a 99% level of confidence. Furthermore, population growth was statistically significantly lower during the 1950-2016 period in Nordic countries than other countries. The growth record of Nordic economies are not uniform. The growth rates in Sweden show a positive trend from 1620 to 2017. The standard deviation of growth rates shows a decrease in seven-year moving standard deviations indicating a slightly less volatile growth rates, a higher stability. On the other hand, in Norway both the trend and cyclical component get bigger in time. In Denmark, the 1940-1979 period was the one with the highest average annual growth rate. On the other hand, the standard deviations of residuals (cyclical component) were also higher during 1900-2016 period, that is, a more volatile growth. In Finland, the 1917-1929 period was the one with the highest average annual growth rate, followed by the 1930-1939 period and the 1948-1969 period with a higher cyclical component slightly higher during 1900-2016 period. In Iceland, with available data starting in 1950, the growth was significantly higher during the 1950-1982 period compared with the 1983-2016 period. Cyclical component was higher during the 1960-2000 period. The labor market outcomes are result of some form of democratic corporatism. Labor unions, employers’ unions, government and some other institutions are involved in wage determination. In this process general economic conditions, competitiveness of the particular industry, and employment outcomes are taken into account. Even central banks are involved in this process through determination of interest rates and exchange rates. The leading objective is to have high levels of employment. If certain policies lead to unemployment, the unemployed are protected through generous unemployment benefits. This brings flexibility to firing and hiring procedures. If capitalist economies are ranked on the power of markets Nordic economies would be at one end and USA on the other end. It was hypothesized that in Nordic economies the lack of competition and incentives would lead to stagnation and low level of technological development. The data do not support this hypothesis. Nordic economies up to now kept their welfare system, labor market institutions and polices and still performed well in terms of economic growth and employment compared to other advanced economies. The recent test was globalization and the Great Recession and these economies overall did well. The welfare system and labor market outcomes led to reduction of inequalities and poverty. Nordic economies have not followed the trend in some other advanced economies where distribution of income deteriorated in the recent decades. The question is whether this system of welfare and labor market outcomes are sustainable. This is a subject widely discussed particularly in Nordic countries. The following areas are considered as putting pressure on Nordic labor markets. Firstly labor union density is declining, though still high compared to other countries. More importantly union membership is falling among vulnerable groups in the private sector. Secondly, due to the increased migration the structure of labor force has been changing. This coupled with international low-wage competition is weakening the collective bargaining system and the cooperation between companies in some industries. Thirdly, the national autonomy in the regulation of worker rights and industrial relations has been eroded because of EU. These developments reduces the wage floor as well as the social floor. Lastly, some reforms were introduced which tended to weaken incentives for organization and bargaining. All these pressures are not helping to maintain a system of negotiated flexibility, balanced tripartite cooperation, increased union organization, and active participation at company and workplace levels. Furthermore the political parties are moving towards the center. Fiscal policy is the key policy instrument to make the welfare state work both in terms of revenue and the expenditure sides. The Nordic countries have one of the highest tax burdens in the world, but also the most inclusive, almost free of charge social services with the highest quality available to their residents. Most of the revenues come from direct taxes on income and profits which are progressive as opposed to regressive taxes on goods and services. Norway which is an outlier cycles its hydrocarbon revenues through the Government Pension Fund Global, using only a fraction of it to finance the current budget. While health spending is in line with the EU countries, education and social protection spending is higher than the EU average. Despite these common characteristics, there are significant differences in the organization of the delivery of social services. On the other hand, monetary policy is not one of the distinguishing characteristics of Nordic model. The studies on Nordic model very rarely include a chapter or a section on monetary policy. The Nordic countries are small and open countries. It would be very difficult for them to have an independent monetary and exchange rate policies. Whether they are members or not they have a very close relationship with the European countries. Consequently Norway, Sweden and Iceland closely shadow ECB policies.Yayın Globalization, Growth, and Inequality(S & B World Foundation, 2017-11) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, TanjuWhile there are many definitions of globalization, depending on the observers, their political leanings, areas of interests and geographical origins, the following can be considered as a broadly accepted definition: "Globalization is a process of interaction and integration among the people, companies, and governments of different nations, a process driven by international trade and investment and aided by information technology. This process has effects on the environment, on culture, on political systems, on economic development and prosperity, and on human physical well-being in societies around the world."¹ It also has several dimensions: economic, social, political, cultural, etc. which are also interrelated. This report focuses on economic globalization². Globalization, in the form of trade among the lands across continents, dates to Sumerian and Indus Valley civilizations. Economic historians cite the Silk Road, spanning a vast area between China and Europe as an example of globalization of trade. The period after the industrial revolution until the World War I is also highlighted as another example of relatively free flow of goods and capital across countries far apart. Globalization in the second half the 20th Century follows several decades of import substitution policies in developing countries particularly in Latin America proved to be less effective than export-oriented policies implemented by several East Asian countries around mid-1980s. By the beginning of the 1990s, many countries have embarked on export-oriented policies and started to reduce trade barriers. The policy framework that was labeled as the “Washington Consensus” advocated liberalization of trade, elimination of quantitative restrictions and replacement by low and uniform tariffs; liberalization of rules for foreign direct investment flows and reducing capital controls; and market determined exchange rates. Together with rapid technological advancement, particularly in communication and information technology, globalization took off between the early 1990s and 2007 when the global financial crisis brought it to an abrupt halt. Trade as a share of world GDP almost doubled from 16.8 percent to 31.3 percent during the twenty years between 1988 and 2008. Global capital flows have acted as both the causes and outcomes of globalization. They increased from 5.8 percent of global GDP in 1995 to 21.5 percent in 2007 and the stock of global financial assets went up from 256 percent of GDP to355 percent respectively. The period from 1990 to 2007 saw a very rapid growth at 8 percent a year in global financial assets in contrast to the 2008-2012 period when their growth slowed down to 1.9 percent a year. Because of its multifaceted character, measuring globalization has not been an easy task. One of the most commonly used measure is the KOF Index which covers the 1970-2014 period. It has five distinguishable trends. The increase was highest during 1994-2000 with an annual increase of 1.16, followed by 1988-1993 with an annual increase of 0.86, and 2001-2006 with an annual increase of 0.59. The increase was more modest for the 1970-1987 period with an annual increase of 0.32, and very low for the 2007-2014 period with an annual increase of 0.10. These indicate that the 1988-2006 period may be regarded as a period of rapid rate of globalization. While the impact of globalization on individual countries has been varied depending on their political and social environment, it is likely that globalization spurred economic growth, creating employment in developing countries and helped reduce absolute poverty across the globe, but empirical evidence is scant. The real-World GDP using purchasing power parity has four distinct periods in terms of growth rates, with average growth rates of 1.7% for the 1990-1994 period, 3.4% for the 1994-2001 period, 4.7% for the 2002-2008 period and 3.5% for the 2009-2016 period. A significant trend shift was observed in World inflation (measured using GDP deflator). The rate of increase (not the rate of inflation itself) in inflation was 1.9% during 1960-1975, and negative 0.2 during 1976-2016. This significant decrease was probably largely due to globalization with the increase in the number of less expensive places of production, and other factors such as decreases in commodity prices, and the peace dividend. An important effect was seen on poverty (measured as poverty headcount ratio at $1.90 a day, 2011 PPP, % of population). There was a negative trend in the poverty headcount ratio for the entire period, but significantly negative for the post 2005 period. In short, whether one uses flow of goods and services, flows of capital (foreign direct investment), or flow of labor (migration, and even tourism), there is a significant increase during the post 1990 period. A small econometric model with alternative scenarios clearly show that real GDP would have been higher with a higher KOF globalization index in all countries and the world. In addition, inflation would have been lower in the world economy. These results suggest positive effect of globalization on real GDP. The index of Economic Complexity attempts to measure the amount of productive knowledge that each country holds. This measure for productive knowledge can account income differences between the nations of the world and has the capacity to predict the growth rate. Results on growth and inflation equations are mixed in terms of identifying determinants. There is no clear dominance of the index of economic complexity, and world exports. Simulation results based on a small econometric model indicate that economic complexity indexes are higher with higher KOF indexes. The effects of globalization on employment cover a large and controversial area. Trade, foreign direct investment and technology transfer have differing effects on employment outcomes in both advanced and developing economies. The opponents of globalization in developed countries argue that trade with developing countries where wages and labor standards are low lead to unemployment at least in some sectors and regions. An important implication of this is increasing inequality. De-industrialization in developed countries is a result of the trade with labor surplus countries. The low labor standards put pressure on the labor standards in developed countries and start the process of ‘race to the bottom’. There is no theoretical framework providing clear explanations to these questions. The empirical findings are mixed. Trade causes sectoral shifts in employment; may lead to unemployment in some sectors. On the other hand, the culprit may be skill-biased technological change. The de-industrialization, that is, declining employment share of manufacturing, is result of more of a technological change and increasing productivity. There is no evidence of ‘race to the bottom’. The wage rates in developing countries tend to increase after some point, and FDI flows put pressure on domestic institutions for wage and labor standards to increase. Some authors find that trade policy is one of the aspects of globalization; other aspects such as immigration, capital flows, and technology transfers had more effect on employment and wages, and over-all well-being of labor force. The effects of globalization employment in developing countries are also mixed. In general, protected industries suffered, in competitive sectors employment increased. Countries differ in their management of integration with the world economy, speed and spread of liberalization and technological capabilities. Depending on these factors employment effects showed some variation. In some countries employment increased, however this was not a shift from less productive to more productive sectors. Consequently, these countries did not really benefit from globalization. Compared to earlier migration waves, this period has smaller waves. The sources of migration and destinations have changed. Migrant receiving developed countries, have stricter rules and controls. Current globalization is less friendly to unskilled migrants. So, migration is more in the form of brain drain, where educated and skilled people migrate. This has a negative effect on the migrating country labor force. Growing inequality is one of the developments most associated with globalization. There is not enough evidence on the causality between income distribution and globalization. On the other hand, this wave of globalization was accompanied by somewhat unexpected developments with respect to income distribution and related areas. Firstly, the world witnessed a dramatic decline in poverty. During the last three decades more than one billion people escaped poverty. There is more room for improvement, however this is still a great achievement. While China and Southern Asia took important steps in eradicating poverty, Sub-Saharan Africa is the region where more than 50 percent of the global poor still lives. The main factor in reducing poverty was the economic growth performance of these countries. This brings us to the second development that took place in the recent decades. During 1960s, it was a fact that the gap between advanced and developing countries would never close. However, some developing countries particularly those classified as emerging markets showed a remarkable growth performance. During the last decades, these countries had growth rates on average significantly higher than developed countries. Indeed, this did not close the gap, but these countries’ performance contributed to gap getting smaller. The convergence became a possibility. The inequality between countries got smaller. Again, not all developing countries showed this performance and benefited from the current wave of globalization. The third development is the increasing inequality within countries. According to the Kuznets Cycle economies would have more inequality in initial stages of development and inequality would decline as the economies mature. This was the experience of the developed countries. However, this wave of globalization was accompanied with increasing inequality in both developed and developing countries. In most of the developed countries the incomes of middle income groups stagnated while high income groups, particularly top 1 percent gained a lot. This also contributed to increasing inequality in the global distribution of income. Globally the losers of this process are the middle class in developed countries. The winners are the poor and middle-income groups of some developing countries such as China and top income groups of developed countries. These outcomes are considered as result of trade liberalization, financial deregulation, skill-biased technological change or rent-seeking activities. In line with the changes in the distribution of income the wealth distribution has also changed. The regional and global distribution of wealth show the same picture. The Human Development Index does not just rely on per capita gross domestic product to measure development. It is a more general measure of achievements in three key dimensions of human development: a long and healthy life, access to knowledge and a decent standard of living. It should be stressed that growth or human development is a long-run phenomenon, hence cross-country regressions rather than annual data on a single country may be a better approach. However, with the latter it was possible to see the effects in various countries. Scenarios with KOF indexes 10% higher than historical values are used to make comparisons. Here, results based on Scenario 2 – all KOF indexes (for the world and sample countries) are 10% higher. Results show that human development indexes are higher with higher globalization indexes. Most people in the world are better off in terms of income, health, and education compared with their situation in 1990s.Yayın Globalization, Trade, Productivity and Development(S & B World Foundation, 2018) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, TanjuGlobalization is the integration of economies, industries, markets, cultures and policy-making around the world, as defined by the Financial Times. Initially, globalization referred to international trade - increased interconnectedness of product markets, but gradually expanded to include international capital flows, labor markets and migration, and recently broader areas such as culture, media, sports and entertainment. Economic globalization started to accelerate with trade liberalization and expansion after the World War II and picked up speed in the early 1990s which lasted until about 2007, then slowed down again after the 2008 global financial crisis. It also affected different geographical regions at varying degrees: countries in East Asia and Pacific experienced the most rapid pace while in the Europe and Central Asia the slowest and upper middle-income countries also experienced a rapid pace during the 1970-2015 in contrast to high income countries which had already a higher starting point. Some aspects of globalization evolved so rapidly: mobile telephone subscriptions increased at a stellar speed from 12 per 100 people in 2001 to 105 per 100 people in 2017, individuals using internet from 8 percent of population to 46 percent respectively. The rise of social media and instantaneous global communications have helped rapid expansion of globalization in culture and entertainment. Developments in information technology pushed envelope for financial globalization and developments in maritime transportation such as containerization made larger volumes of goods traded across in short time possible. Globalization and increased international trade are the major forces behind improved competitiveness and productivity, hence growth and development in the case of least developed economies. Although, the benefits of trade are conceptually very clear, and the world is full of positive anecdotes, there are still opposing views and myths regarding international trade. The political economy of trade is the key to understanding these opposing views. It is clear to everyone that it is not necessary for a company in New Jersey to produce the same goods which are produced at a lower cost in Pennsylvania. Once, borders and customs are introduced, as between countries, these very clear results are questioned. International relations and politics start to play a major role after this. Pressure groups find their ways of imposing restrictions on free trade. Results may not be beneficial for most of the people, but just a small number of economically powerful groups. The world has witnessed objections in developing countries to foreign direct investment before 1980s. A cursory look at academic journals or daily newspapers is enough to see the opposition in all circles. The argument was that multinationals from developed countries build factories in developing economies, make large profits, and repatriate these profits to their home countries, without helping much to host countries. On the other side, developed economies were pushing for free trade and free movement of capital. There are large markets with large demand in developing world, but not enough local production. These can be filled by large companies from developed countries. Developed economies slowly moved in that direction of a trade with a smaller number of restrictions. China, a socialist country initiated economic reforms in 1978 and finally become a member of the World Trade Organization in 1998. The collapse of the Soviet Union in 1991 also helped people to give support to marketbased economies and made any free trade argument sound more reasonable. These factors made movement towards a world free trade faster. A country has to be more competitive once its borders are opened to foreign goods. Producers in a closed economy can sell whatever they produce to domestic consumers who do not have much choice. With open borders, consumers have a choices and domestic producers should live up to expectations and deliver those goods. If borders are open to foreign companies, then those companies, which have the technology, can produce those goods at a lower cost because of lower wages. These goods are then exported to developed countries at a lower price, including the country that is the base for the company. All countries can benefit from this trade, but benefits may not be shared equally within a country. Protectionist trade policies were adopted by all the countries at various times. The reason may be to protect the domestic infant industry, or to generate additional government revenue, etc. In general, these policies lead to gains for domestic producers and losses for consumers. Since commodity prices are distorted as a result of these policies, the allocation of resources will ultimately be affected. Reduction in tariffs, especially after 1998, may have played a role in reduction in prices at a global level, and increases in world trade. If a tariff is imposed on a commodity, it may have the effect on the corresponding sector, and more. Higher prices will increase the cost of production in related products. Higher product prices will affect prices in other sectors. Higher prices and lower outputs are the outcomes in all the sectors. If this analysis is extended to other countries, the global economy may end up with higher prices and lower output. Global value chains (GVC) represent the changing nature of trade in the current wave of globalization. The fragmentation of production, vertical specialization and trade in tasks are the main features of this changing nature. The role of GVCs in trade and investment flows have been discussed a lot in academic and policy circles. The policy implications of GVCs are important. The proponents of GVC trade consider GVC as denationalizing comparative advantage, thus countries could industrialize by joining GVCs rather than by building their own. So integration into GVCs has been widely viewed as a strategic pillar for developing countries to become more competitive, to develop the skills and human capital of their labor force, and to acquire technology to industrialize and move into higher value-added production. This may result in escaping from middle-income trap for some countries. There is a lot of speculation and debate whether this is happening. The overall evidence is positive, but the benefits are not automatic. Another benefit of GVC framework is the revisiting trade statistics. Traditional statistics cover only the gross trade. Consequently, it is not possible to see the contribution of trade to national income. Within the GVC framework trade in value added can be estimated and better trade and industrial policies can be formulated. The last wave of globalization witnessed a dramatic increase in capital flows. Financial integration has become a key component of globalization which facilitated larger flows of portfolio investments and financial derivatives in addition to the foreign direct investment and inter-company loans across borders. The attitudes towards foreign direct investment (FDI) has undergone some changes. Outward investment was considered as the cause of job displacement, while the inward flow as replacing the domestic export industries. At certain periods these attitudes were justified and valid. The interaction between domestic governments and transnational corporations (TNCs) changed these attitudes and eliminated some of the concerns. At a different level the relationship between international trade and FDI is an issue of concern. Earlier studies implied that trade and FDI were substitutes. The recent theoretical and empirical studies on the other hand indicated that FDI and trade are complements. Indeed, there are number of factors involved in this process. However, the overall relation is beneficial to all parties. During the recent decades the income inequality has undergone some conflicting changes. Firstly, there has been some convergence between developed and developing countries. This is an unexpected development. This convergence is on average terms; some developing countries like China grew very fast, while some other developing countries lagged. Secondly, another unexpected development was the growing inequality in some developed countries. This happened in the last four decades. It was unexpected because trend after 1930s were more equal distribution of income. Finally, the global distribution of income shows a trend towards more equality. The combination of convergence and large number of people escaping from poverty led to more global equality. As extensive study in this report shows that economic reforms particularly liberalization of trade and capital, introduced in China and India and some other countries opened the formerly closed economies to global competition. These economies have grown uninterruptedly at high rates and hence the mean income increased considerably. The mean levels of income are still far below the average income levels of the middle classes in developed countries of income. However still billions of people escaped from poverty. The relationship between trade and inequality has been a controversial issue. The opponents of globalization blamed globalization and trade for job displacement and increasing inequality particularly in some developed countries. Theoretical and empirical studies indicate that trade in itself is not the cause increasing inequality. There are other political and social variables which determine the distribution of income. Furthermore, the increasing income equality is a serious problem for some countries but not for all. The between countries income equality has decreased and the convergence between advanced and developing economies became a possibility during this period. Global inequality of income as well as poverty decreased. These are the developments possibly outweighing the increasing inequality in some economies. Another important criticism of globalization is the increased risk of contagion of economic crises through interconnected financial and product markets as was seen in the 2008 crisis. As it occurred in the previous global economic crises the protectionist tendencies in the world have increased. With the great recession, flow of goods and services as well as capital decreased; then they tended to increase but not reached the pre-crisis levels. Another important development is the increasing possibility of trade wars and the dissolution of multilateral agreements on trade. As discussed in thisreport, globalization has had positive effects on the world economy whether one looks at increases in per capita incomes, growth, decreases in poverty, and decreases in inflation. The positive effects of globalization on productivity, competitiveness, economic complexity, and human developments are shown in detail in this report. On the other hand, this report demonstrates that, in general, economic equality has deteriorated with globalization. Further research is required to determine whether globalization or technological development is the major contributing factor to increasing inequality within countries.Yayın A Comparative Review of Economic Performances of Egypt, Iran and Turkey (and South Korea as a Benchmark)(S & B World Foundation, 2016-08) Kaytaz, Mehmet; Özmucur, Süleyman; Yürükoğlu, TanjuThere is a strong statistical relationship between a country’s per capita GDP (expressed in PPP dollars) and per capita health expenditures also expressed in PPP dollars. In 2013, on average, 8.4 percent of per capita GDP was spent on health as a regression among 179 countries showed. Given their income levels, all four countries (EIT and South Korea) spent less than the norm based on this yardstick. Egypt had the lowest share of budgetary expenditures on social sectors, particularly health and education. In turn, the shares of social spending in all three countries were considerably lower than the average for EU-28 in 2014. For instance, health expenditures in Egypt was 5.6 percent of total budget expenditures in 2014, contrasted to 17.5 percent in Iran, 12.3 percent in Turkey and 15 percent in the European Union. Key health indicators, in a way, reflect the relationship between the resources allocated to the sector and outcomes. There were also significant improvements in sanitary facilities contributing to improvements in health outcomes in three countries. Egypt had the lowest life expectancy at birth and the highest infant mortality rate among the EIT countries in 2014. In terms of resources of the health care systems, there are significant differences among the EIT. Compared to South Korea, the number of hospital beds per 1,000 in Egypt, Iran and Turkey are significantly lower and showed little improvement during the last thirty years. The number of health care practitioners varies a lot among the EIT. Unlike Iran and Turkey, Egypt has many more physicians and nurses on a per capita basis than the cross country comparisons suggest. Because of the concentration of doctors in the Cairo area, the rest of the country is not well served despite the relatively larger numbers of practitioners who also run parallel practices in addition to their jobs at public health care facilities. The Iranian health care system went through a series of reforms since 1983 by creating the National Health Network including “Health Houses”, staffed by trained “Behvarz” in rural areas and a chain of Rural and District Health Centers. The Family Physician Program which was established in 2005 and implemented in rural areas and cities with populations of less than 20 000 people to improve the referral system and provide health-care services did not prove to be effective. Rising health costs and slow improvements in health care led to the adoption of the “Health Sector Evolution Plan” in 2014. While the plan has helped bring down out-of-pocket (OOP) costs for patients, there is room for further significant improvements in the health care system. Turkey embarked on an ambitious health reform program in 2003 intended to separate policymaking, regulatory, financing, and provision roles. The Social Security Institution was established as a single payer, on pooling both risk and funds from contributory health insurance and the government-financed Green Card. It also included the introduction of a family practitioner scheme nationwide, the introduction of a performance-based payment system in Ministry of Health hospitals, and transferring the ownership of the majority of public hospitals to the Ministry of Health. Lack of cost controls and favorable treatment of private providers pushed up health care costs which doubled in real terms between 2001 and 2014. The share of expenditures on hospitals went up from 38 percent in 2001 to 49 percent in 2014, contrary to the intentions of the program. In the latest Human Development Index which is for 2014, Iran ranked the 69th, Turkey the 72nd and Egypt the 108th compared to South Korea which ranked the 17th. While the EIT showed progress over time in improving their scores, their relative ranking has not changed since 1990. On the Gender Inequality Index Turkey ranked the 71st, Iran the 114th, Egypt the 131st and South Korea the 23rd. The Global Gender Gap Index (GGI) compiled by the World Economic Forum (WEF) shows deterioration in Iran’s score between 1996 and 2015 and some improvement for Egypt and Turkey during the same period. Rapidly declining mortality rates and high fertility rates led to large increases in populations of the EIT; in 1965-2015 the population of Turkey almost tripled; the populations of Egypt and Iran more than tripled. The fertility rate in Egypt continues to be higher than that of in Iran and Turkey. It is projected that the population of Egypt will reach about 109 million in 2025, while that of Iran will be 86 million and the population of Turkey will be 85 million. The young population in the EIT creates an important window of opportunity. The education, health, and employment indicators suggest that Turkey is nearer to make use of this opportunity than Iran and Egypt. The population growth in Egypt, Iran and Turkey has been faster than employment growth. Egypt created 10.7 million jobs against a population increase of 29.9 million during 1991-2013. Iran and Turkey created 10.3 and 6.3 million jobs for a population increase of 19.9 and 20.1 million respectively, during the same period. In the EIT labor force participation rates and overall employment rates are low in comparison to many other countries. The low level of particularly female participation rates creates serious social and economic problems. In the urban areas these problems become more acute. Another problem is the low level of education of the labor force. In the EIT more than half of the labor force has just primary education. The labor force in Egypt is more educated than the others in relative terms. However, the female labor force in Iran is more educated than in the others. There is a mismatch between education and occupational needs in varying degrees in these countries. For instance, the number of graduates of humanities and Islamic studies is four times more than the graduates in other areas in Iran. While the unemployment rates in Egypt and Iran seem settled to a plateau of 13 percent, the policies implemented in Turkey starting in 2009 were relatively successful and the unemployment rate is around 10 percent. The unemployment rates for women in Egypt and Iran are significantly higher than males in contrast to Turkey where there is not a significant difference between them. In Egypt and in Iran and to some extent in Turkey women face many hurdles even though their educational attainment is high. In Iran, the education level of women is very high; more than 30 percent of female labor force has a tertiary education; on the other hand the female university graduates have a 50 percent unemployment rate. The governments do not have specific policies for supporting employment or for supporting labor intensive industries in Egypt and in Iran. The existing labor codes have an anti-business biases which cause strong rigidities in the labor markets and the non-wage expenses on labor are higher than the wages in all three countries. Particularly in Iran absence of independent labor unions, low labor mobility, lack of collective bargaining, and inflexibility of wages created strong structural barriers to a well-functioning labor market. While social justice and distributive dimension of Islam religion are emphasized by the EIT politicians, in general, the inequality of income distribution has not changed much over the decades. Egypt presents a better picture of income distribution than the others. Egyptian income distribution was relatively egalitarian since the mid-1950s, have improved over time where the Gini coefficient declined from 36.1 percent in 2000 to 30 percent in 2013. It was estimated at 37.8 percent for Iran and 40.1 percent for Turkey in 2013. On the other hand, absolute poverty is a real problem in Egypt while Turkey and Iran reduced poverty to a great extent. During the 1950s, there was not much difference between these countries. Their integration with the global economy and their transition to a market economy is an ongoing process. Turkey’s joining the Customs Union and candidacy for the EU provided a strong impetus for diversification and a competitive environment. Egypt and Iran were not successful in diversifying industry and providing competition. In both countries established interests were protected. Furthermore, Iran fought with embargoes and economic sanctions and the economy depended on oil exports. Overall the political system in Turkey, although it lacks a lot, is more conducive to inclusiveness and economic growth than in Egypt and Iran.
