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Turkey Green Growth Policy Paper: Towards a Greener Economy

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1.3 Report Outline

The report is organized in seven Chapters. Following the introductory Chapter, Chapter 2 sets the stage by reviewing the structure of Turkey’s economy and its performance, as well as the challenges and opportunities provided by Turkey’s current growth path from implementing a ‘green agenda’ linked to achieving standards set by EU Directives and OECD principles; this is followed by a review of where Turkey stands compared to developed and emerging economies, in terms of what is broadly understood as a comprehensive approach to green growth. Chapter 3 uses a narrower, more operational, definition of green growth for the purposes of the analysis undertaken in the Policy Note. Chapter 4 presents an assessment of the seven strategic sectors selected for a more focused analysis. It also highlights the greening potential within these sectors. Chapter 5 reviews the range of policy instruments available in the EU and other emerging international experiences, as well as the relevance of these policy options to the objectives of the Policy Note. Chapter 6 presents the economy-wide framework and the results of the pilot economic ‘impact analysis’ of two types of greening scenarios: an urban scenario (linked to production and consumption by firms and households) and a rural scenario focused on agriculture. Finally, Chapter 7 concludes with an initial set of recommendations.

2. Turkey’s Green Growth Challenges and Opportunities

2.1 Turkey’s economy and its recent performance7

As Turkey continues to seek faster output growth, innovate, and create jobs, it also wants to take advantage of opportunities for greening its economy by moving towards a cleaner environment and more sustainable use of its natural resource base. From the emerging green growth literature and international cross-country evidence,8 this would require flexibility more able economy and the availability of qualified human resources and well-designed policies to help achieve outcomes that take advantage of synergies and reduce potential trade-offs between economic and environmental objectives.
Turkey’s economy is increasingly dominated by the service sector, which currently contributes about 68% of the GDP, followed by industry (23%) and agriculture (9%) (Figure 2.1). While this breakdown differs from that of Euro Area countries (72% services sector 72, 26% industry, and less than 2% agriculture), further movement towards expansion of services at the expense of industry and agriculture would presumably result in declines in intensely-used resource (including land, water and energy), as well increased emissions (pollution and waste). At the same time, the relatively high share of manufacturing in value added, and around a 70% share of manufacturing in industry (Figure 2.2) could be interpreted as a country’s asset, since manufacturing is an important economic driver through its role in trade (both imports and exports), FDI, rapid absorbing of technological change, and skilled labor)9 development.

Figure 2.1 Structure of value added (% of total), 2010 or latest available year

Figure 2.2 Manufacturing, % of total value added, and share of manufacturing in industry, 2010 or latest

Source: World Bank staff calculations based on the World Development Indicators.

Following a steep decline in 2009 the Turkish economy is currently experiencing a robust recovery.10 Public finances are improving and confidence in a lasting transformation of the country's economic prospects and stability is increasing. Nevertheless, the rapid expansion of economic activity, driven by strong domestic demand, has led to significant and rising external imbalances that pose a threat to macroeconomic stability.
Turkey’s macroeconomic policies and structural reforms over the past decade have yielded robust economic growth. Real GDP increased by more than 50 percent between 2001 and 2010 and the average growth rate was nearly 7 percent during 2003-07, up from an average of 4 percent during the 1990s. Growth resumed rapidly after the 2008-2009 global crisis, at 9.2 percent in 2010 and 8.5 percent in 2011. Per capita income now stands at US$10,444. General Government primary surpluses averaged about 4.6 percent of GDP over 2004-10, and gross public debt as a percentage of GDP fell from 73.4 percent in 2002 to 42.2 percent in 2011, in spite of an increase during the 2008-09 global crisis. Inflation came down from a high of around 70 percent to under 10 percent. Healthy export growth (15 percent per year over 2004-11) contributed to limiting external vulnerability.
Turkey recovered from the 2009 recession quickly, with a GDP growth of 9.2 percent in 2010 and 8.5 percent in 2011. The strong growth was facilitated by rapid credit growth and high capital inflows (supported global liquidity and healthy Turkish balance sheets). Real output rose almost ten percent over its pre-crisis peak. During the past two years, growth has been driven by domestic consumption and investment demand from the private sector, fueled by historically low interest rates. In 2010, while private consumption and private investment accounted for about 5 percentage points each to the 9.2 percent overall growth rate, net exports made a negative contribution.
Labor force participation increased and unemployment fell below pre-crisis levels. After peaking at 14.8 percent in April 2009, seasonally adjusted unemployment has decreased steadily, falling below pre-crisis levels to 9.0 percent by January 2012. Nonetheless, open unemployment in Turkey remains high in absolute terms, and the Turkish labor market is characterized by low activity rates and high job informality. The employment rate of working age (15-64) women (26 percent in 2010) is the lowest among OECD and Europe and Central Asia countries. And about 40 percent of those employed are working in the informal sector, although job informality has decreased somewhat.
Turkey’s growth path is predicated on the continued progress of its unfinished structural reform agenda. Such reforms include the implementation of the new commercial code and code of obligations, labor market reform, measures to bolster long-term fiscal savings and the reduction of imported fuel dependency through an expansion of renewable energy use in electricity generation and improvements in energy efficiency. The Government continues its efforts to enhance labor market flexibility while protecting workers. The current account deficit is projected to narrow in the outer years through structural reforms, higher domestic savings and enhanced competitiveness as well as a recovery in global growth.

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