Em erging South and Ageing North A Case for South-South Trade - PowerPoint PPT Presentation

Em erging “South” and Ageing “North” – A Case for South-South Trade Diversification for Turkey Patrick Georges and Aylin Seçkin 9 th Meeting of the Working Group on Macroeconomic Aspects of Intergenerational Transfers Barcelona, June 3-4, 2013 TUBITAK Research Grant # SOBAG 111K489

NTA Turkey – 3 studies 1. National Transfer Accounts (NTA) for Turkey: A First Step – The Life Cycle Deficit 2. Demographic shock in Turkey: Economic and fiscal impacts of UN medium and high fertility scenarios • Small open economy, OLG ‐ CGE • Calibration to some NTA Turkey features 3. Emerging “South and Ageing “North” –A Case for South ‐ South Trade Diversification for Turkey • Multi ‐ country, OLG ‐ CGE model with international trade 2

Outline 1. Global Trade Flows and Policy Debate in Turkey 2. Trade Diversification and Demographics / Results 3. Conclusion/Caveats 3

Trends in Global Trade Flows (last 20 years) • Share of North ‐ North Trade: decreased • Share of North ‐ South Trade: slight increase • Share of South ‐ South Trade: Impressive increase 4

Fig. 1 Shares of North ‐ North, North ‐ South and South ‐ South trade in world merchandise exports, 1990 ‐ 2011 (% of world trade) 100 North ‐ North 90 36 37 80 40 41 46 50 51 56 70 North ‐ South 60 50 38 38 37 40 37 37 South ‐ South 36 35 30 33 20 24 23 21 20 10 16 12 12 8 Unspecified 0 destinations 1990 1995 2000 2005 2008 2009 2010 2011 5

Trends in Global Trade Flows • « Naïve » trend projection : By 2050, South ‐ South share =50% of global trade flows (compared to 24% today) Danger of extrapolating past trends, but: • – South is benefitting from a demographic dividend • Increasing number of workers and consumers – South is a source of major trade & growth opportunity for the South ! 6

Trade Policy Debate in Turkey • Big question : Benefits for Turkey of developing further trade links with – MENA (Midde East and North Africa) – Russia and CIS (Commonwealth of Indep’t states) – Turkic countries (Azerbaïdjan, Turkmenistan, Kazakhstan…) – India, China? • One obvious fact : Share of Europe in Turkish overall trade flows has fallen since the 1996 Customs Union EU ‐ Turkey 7

Where does Turkey export? 0.70 0.60 0.50 USA EUR 0.40 RUS 0.30 CHN 0.20 IND ROW 0.10 0.00 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 8

Where does Turkey export? Decomposing the ROW share of Turkish export 0.60 0.50 0.40 TUC 0.30 NAC MEC 0.20 OTH 0.10 0.00 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 9

0.1 0.2 0.3 0.4 0.5 0.6 0 From where does Turkey import? 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 ROW IND CHN RUS EUR USA 10

Trade Policy Debate in Turkey • EU membership candidacy? — Disillusion • Customs Union with EU? – Scrap it(?) – Falling trade shares with EU – Turkey lose the ability to negotiate FTAs with new partners (separately from EU) – “EU ‐ USA” Transatlantic FTA negotiations: • Turkish tariffs on US goods must be eliminated • US tariffs on Turkish goods must be negotiated separately Look “East” (MENA, CIS, Turkic countries) • 11

Trade Policy Debate in Turkey • Demographic trends emphasized: – In Turkey: Working age population/total population is growing – EU is ageing, (this is the opposite) 12

Outline 1. Global Trade Flows and Policy Debate in Turkey 2. Trade Diversification and Demographics /results 3. Conclusion/Caveats 13

Population ageing will be a defining feature of most countries during the 21 st century Old ‐ Age Dependency Ratio (%) [65 + /(15 – 64)] 60.00 TUR 50.00 USA 40.00 EUR 30.00 RUS 20.00 CHN 10.00 IND 0.00 ROW 1950 1970 1990 2010 2030 2050 2070 2090 14

• Economic/fiscal impact of ageing? • Use of a Dynamic global OLG CGE model – Georges and Mérette (2010), – Mérette and Georges (2010) – Dynamic : demographic transition:1930 – 2100 • Forward looking agents – Global : Turkey, USA, EU, Russia, China, India, ROW • All 7 countries/regions are fully modeled – OLG : 7 generations (age groups) alive at each point in time • 15 ‐ 24 // 25 ‐ 34 // 35 ‐ 44 // 45 ‐ 54 // 55 ‐ 64 // 65 ‐ 74 // 75 ‐ 84 5 working-age generations 2 retired generations • One representative agent per age group who maximizes lifetime utility (7 representative households in each region) 15

Calibration, Shock • Calibration (in part) to GTAP ‐ 8 trade data, OECD pension benefit rates • For the Future: use of NTA data as well • Shock: demographic projections of the UN (medium variant) ( exogenous to the model) Total Population OADR (normalised at 1 in 2011) 60.00 2.5 TUR 50.00 TUR 2 40.00 USA USA 1.5 30.00 EUR EUR 1 20.00 RUS RUS 10.00 0.5 CHN 0.00 CHN 0 IND 1950 1990 2030 2070 2011 2031 2051 2071 2091 IND 16

Impact of Pop ageing on GDP/Capita Less Part time Discrimination Less young (smalle Retirement productive against older Pop size) + Hours # Employed Labor Force 15 GDP GDP = × × × × + Hours # Employed Labor Force 15 POP POP 1 2 3 1 42 4 43 4 1 42 4 43 4 1 2 3 1 42 43 Productivi ty Employment Rate Labor Force Participat ion Adult over Total Pop Effort # Employed Labor Force 15+ POP # Unemployed Inactive& retired 0-15 17

(PRELIMINARY!) Demographically ‐ driven real GDP/POP (abstracting from technical progress) 110 105 TUR USA 100 EUR 95 RUS CHN 90 IND 85 ROW 80 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 18

Real Consumption per Capita • Real Consumption is the difference between real Production (GDP) and Saving ? ⎧ ⎫ CON P GDP Saving = Q × − ⎨ ⎬ ⎩ ⎭ POP P POP POP 1 2 3 CON Terms of Trade • Increase in GDP/POP increases CON/POP • In a close economy with a single good, P con =P Q • In an open economy, P con ≠ P Q

Real Consumption per Capita (Turkey) ? ⎧ ⎫ CON P GDP Saving Q = × − ⎨ ⎬ ⎩ ⎭ POP P POP POP 1 2 3 CON Terms of Trade – If Europe ages faster , the goods produced by EU would become relatively “rare” in world markets. – And the price of EU goods would increase relative to those produced in younger countries. – When Turkey imports from EU, P CON – Deterioration in the “ Terms of trade” (TOT) for Turkey

? ⎧ ⎫ CON P GDP Saving Q = × − ⎨ ⎬ ⎩ ⎭ POP P POP POP 1 2 3 CON Terms of Trade If the TOT effect is sufficiently strong: • ageing North could lead to “Immiserizing growth” in the South Bhagwati, 1958 • Acemoglu and Ventura (2002) (TFP shock) • Here: Demographic variant: • cost of ageing North is diffused throughout the South through TOT adjustments ???Demographic Dividends in the South? • 21

• But what will happen to savings? ? ⎧ ⎫ CON P GDP Saving = Q × − ⎨ ⎬ ⎩ ⎭ POP P POP POP 1 2 3 CON Terms of Trade 1.6 12 1.4 10 1.2 8 C/POP Saving/POP 1 6 0.8 Q/POP INV/POP 4 0.6 Saving/POP CA/POP 0.4 2 0.2 0 0 ‐ 2 193019501970199020102030205020702090 ‐ 0.2 ⎧ ⎫ CON P GDP Saving = Q × − After 2050 ⎨ ⎬ ⎩ ⎭ POP P POP POP 1 2 3 CON Terms of Trade 22

Demographically ‐ driven CON/POP 120 115 TUR 110 USA 105 EUR 100 RUS 95 CHN 90 IND ROW 85 80 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 23

Trade Diversification • impact on Turkey’s CON/POP if we diversify away from the EU in favor of specific trade partners ( MENA /CIS)? 24

Trade diversification Change in shares 0.6 is 0.5 – incremental 0.4 EUR share in TUR imports (roughly 2.5% 0.3 points every 10 ROW share 0.2 in TUR year (2010 ‐ imports 0.1 2050)) 0 – Permanent 1996 2006 2016 2026 2036 2046 2056

Current and counterfactual country shares in Turkey’s import Benchmark Diversification ↓ import shares to ROW 5.4 5.4 USA 40.7 27.1 EU 11.4 11.4 RUS 7.4 7.4 CHN 1.3 1.3 IND 33.8 47.4 ROW 100.0 100.0 Total Source: GTAP 8 and Authors’ computations 26

Trade Diversification and Terms of Trade effect 1.015 Terms of trade (PQ/PCON ) 1.01 1.005 1 0.995 Benchmark 0.99 0.985 Trade Diversification 0.98 0.975 0.97 ⎧ ⎫ CON P GDP Saving Q = × − ⎨ ⎬ ⎩ ⎭ POP P POP POP 1 2 3 CON Terms of Trade 27

Diversification scenario: CON/POP (Turkey) 125 120 115 Benchmark 110 105 Trade 100 Diversification 95 90 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 But, in an OLG model, …different age groups So, who gains, who loses? 28

Welfare of individual cohorts PV of current and future consumption of cohorts (as of their first active working period) 5 4.5 4 3.5 3 2.5 ALCI benchmark 2 Trade diversification 1.5 1 0.5 0 1950 1970 1990 2010 2030 2050 2070 2090 29

Social Welfare Function Sum of welfare indices over cohorts alive during a specific period 7 6 5 4 ALCI benchmark 3 Trade diversification 2 1 0 30

Outline 1. Global Trade Flows and Policy Debate in Turkey 2. Trade Diversification and Demographics / Results 3. Conclusion/Caveats 31