Emerging “South” and Ageing “North” – A Case for South-South Trade Diversification for Turkey Patrick Georges and Aylin Seçkin 9th 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. 3.
Trade Diversification and Demographics / Results 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 90 80 70 60 50 40 30 20 10 0
North‐North
56
51
50
46
41
40
37
36
North‐South
33
8
35
12
36
12
37
16
37
37
20
21
38
38
South‐South 23
24
1990 1995 2000 2005 2008 2009 2010 2011
Unspecified destinations 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
0.40
EUR RUS
0.30
CHN
0.20
IND
0.10
ROW 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0.00
8
Where does Turkey export? Decomposing the ROW share of Turkish export
0.60 0.50 0.40
TUC
0.30
NAC
0.20
MEC OTH
0.10 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0.00
9
From where does Turkey import? 0.6 0.5 USA
0.4
EUR 0.3
RUS
0.2
CHN IND
0.1
ROW 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0
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 21st century Old‐Age Dependency Ratio (%) [65+/(15 – 64)] 60.00 50.00
TUR
40.00
USA
30.00
EUR RUS
20.00
CHN
10.00
IND 2090
2070
2050
2030
2010
1990
1970
1950
0.00
ROW
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) 2.5 2 1.5 1 0.5 0
TUR USA EUR RUS 2011 2031 2051 2071 2091
CHN IND
OADR
60.00 50.00 40.00 30.00 20.00 10.00 0.00
TUR USA EUR RUS CHN 1950 1990 2030 2070
Total Population (normalised at 1 in 2011)
IND 16
Impact of Pop ageing on GDP/Capita Less productive
Part time
Discrimination against older
Retirement
GDP GDP Hours # Employed Labor Force = × × × × POP 1 Hours # Employed 1 Labor 15 +43 23 1 42 4 Force 43 4 142 4 4 4243 Productivity
Effort
Employment Rate
Labor Force Participation
# Employed
POP
Less young (smalle Pop size)
15 + POP 1 23
Adult over Total Pop
Labor Force
15+ # Unemployed
Inactive& retired 0-15
17
(PRELIMINARY!) Demographically‐driven real GDP/POP (abstracting from technical progress) 110 105
TUR
100
USA EUR
95
RUS
90
CHN 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 = POP
PQ ⎧ GDP Saving ⎫ ×⎨ − ⎬ CON P2 POP ⎭ ⎩ POP 1 3
Terms of Trade
• Increase in GDP/POP increases CON/POP • In a close economy with a single good, Pcon =PQ • In an open economy, Pcon ≠PQ
Real Consumption per Capita (Turkey)
?
CON = POP
PQ ⎧ GDP Saving ⎫ ×⎨ − ⎬ CON P POP POP ⎭ ⎩ 123
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, PCON – Deterioration in the “Terms of trade” (TOT) for Turkey
?
CON = POP
PQ ⎧ GDP Saving ⎫ ×⎨ − ⎬ CON P2 POP ⎭ ⎩ POP 1 3
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 = POP
? Saving ⎫
⎧ GDP ×⎨ − ⎬ POP POP ⎩ ⎭
PQ P2 CON 1 3
Terms of Trade 1.6
12
1.4
10
1.2
Saving/POP
1
6
0.8 0.6 0.4
INV/POP
4
CA/POP
2
0.2
C/POP Q/POP Saving/POP
0
0 ‐0.2
8
‐2
193019501970199020102030205020702090
After 2050
CON = POP
PQ P2 CON 1 3
⎧ GDP Saving ⎫ ×⎨ − ⎬ POP POP ⎩ ⎭
Terms of Trade
22
Demographically‐driven CON/POP 120 115 TUR
110
USA
105
EUR
100
RUS
95
CHN
90
IND
85
ROW
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 is
0.6 0.5 0.4
EUR share in TUR imports
0.3
ROW share in TUR imports
0.2 0.1 1996 2006 2016 2026 2036 2046 2056
0
– incremental
(roughly 2.5% points every 10 year (2010‐ 2050)) –Permanent
Current and counterfactual country shares in Turkey’s import Benchmark import shares
Diversification to ROW
USA
5.4
5.4
EU
40.7
27.1
RUS
11.4
11.4
CHN
7.4
7.4
IND
1.3
1.3
ROW
33.8
47.4
↓
Total
100.0 100.0 Source: GTAP 8 and Authors’ computations 26
Trade Diversification and Terms of Trade effect 1.015 1.01 1.005 1 0.995 0.99 0.985 0.98 0.975 0.97
Terms of trade (PQ/PCON)
Benchmark Trade Diversification
CON = POP
PQ ⎧ GDP Saving ⎫ ×⎨ − ⎬ CON P POP POP ⎭ ⎩ 123
Terms of Trade
27
Diversification scenario: CON/POP (Turkey) 125 120 115 Benchmark
110 105
Trade Diversification
100 95 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100
90
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 2 1.5 1 0.5 0
ALCI benchmark
2090
2070
2050
2030
2010
1990
1970
1950
Trade diversification
29
Social Welfare Function Sum of welfare indices over cohorts alive during a specific period 7 6 5 4 3 2
ALCI benchmark Trade diversification
1 0
30
Outline 1. 2.
Global Trade Flows and Policy Debate in Turkey Trade Diversification and Demographics / Results
3. Conclusion/Caveats 31
• Objective of paper –Scenarios of trade diversification in the perspective of an ageing world oGeorges and Mérette (2010); oMérette and Georges (2010);
• Results –South‐South trade diversification could be beneficial to Turkey
32
Caveats/Next Steps 1. only one good per country –
Multisectoral analysis
2. Assumption of imperfect substitution (some market power) – Important feature of international trade theory
3. Exogenous change in trade shares –
What might cause endogenous changes in shares • FTA with MENA/CIS? • Building networks and establishing trust
4. Multi‐country calibration to NTA – NEXT 33
Emerging “South” and Ageing “North” – A Case for South-South Trade Diversification for Turkey Patrick Georges and Aylin Seçkin 9th Meeting of the Working Group on Macroeconomic Aspects of Intergenerational Transfers
Barcelona, June 3-4, 2013 TUBITAK Research Grant # SOBAG 111K489
Laursen-Metzler debate: • If TOT deterioration is transitory: (Laursen-Metzler effect) o Saving ↓ (CA ↓) and CON constant CON = POP
PQ ⎧ GDP Saving ⎫ ×⎨ − ⎬ CON P POP POP ⎭ ⎩ 123
Terms of Trade
• If TOT deterioration is permanent: (Obstfeld, 1982) o CON decreases. Demographic shock (long-lasting) CON = POP
PQ ⎧ GDP Saving ⎫ ×⎨ − ⎬ CON P POP POP ⎭ ⎩ 123
Terms of Trade
Household inter-temporal problem -------TP-------------------------T-------------------
ORD TTP (TTP) 1 1870 2 1880 3 1890 4 1900 5 1910 6 1920 7 1930(TI) 8 1940 9 1950 10 1960 11 1970 12 1980 13 1990 14 2000 15 2010 … … … … 35 2210 36 2220 = CARD (TTP)
Generations g ∈ G; gj ∈ GJ; gm ∈ GM ------------------- GJ---------------------GM----g1 g2 g3 g4 g5 g6 g7 (GI) (GN)
Generations alive at time t Popt,g
Popt,g+1
Popt+1,g
Popt+1,g+1
Popt+2,g Popt+3,g
Popt,g+2
Popt,g+3
Popt,g+5
Popt,g+6
Popt+2,g+2 Popt+3,g+3
Popt+4,g
Population growth over time
Popt,g+4
Popt+4,g+4
Life-time profile of cohort (generation) born at time t
Popt+5,g+5 Popt+6,g+6
36
Household inter‐temporal problem •
Household chooses a profile of consumption over its life‐cycle in order to maximize its lifetime utility under a dynamic budget constraint
U (Con j ,t , g ) U (Con j ,t +1, g +1 ) U (Con j ,t +2, g +2 ) U (Con j ,t +6, g +6 ) + + + ... Uj = 2 3 1 +ψ j (1 + ψ j ) 7 (1 + ψ j ) (1 + ψ j ) U j = ∑k =0 6
U (Con j ,t +k , g +k )
[1 +ψ ]
k +1
j
Uj is a weighted sum of periodic utility function U(.)
ψj = subjective rate of time preference (the higher ψ and the higher the bias for present consumption)
k indexes the increment in the period and the generation 37
Intratemporal problem of household and firms LdemQ j,qual2,t
LdemQ j,qual1,t
C.E.S.
LdemQ i,qual1,t
LdemQ i,qual2,t
C.E.S.
Ldem j,t
Kdem j,t
Ldem i,t
C.D.
C.D.
Supply: Qj,t (at price PQj,t )
Ei,j,t
Ej,j,t
Armington
Composite Final Demand (at price PC j,t )
∑Pop
j ,t , g
Kdem i,t
Supply: Qi,t (at price PQ ) i,t
Ej,i,t
Ei,i,t
Armington
Composite Final Demand at price PCi,t
Con j ,t , g
g
+ Inv j ,t + Gov j ,t
38
Pension System -- Pay as You Go Funding Fully funded (100%) pension plan Our assumptions in this model
Not funded pension plan PAYG
Defined benefit, PensR exogenous CTR endogenous
Defined contribution PensR endogenous, CTR exogenous 39
