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Intellectual Capital of Turkey Kamil Yılmaz Koç University TEPEK National Event Bilkent University, Ankara October 9, 2009 Turkey’s Participation in the European Knowledge Economy Value of Intellectual Capital - 1995 SE FI DK UK AT DE NL BE CY FR LU SI EE IE CZ EUSK LV PL HU ES PT IT EL LT TR MT RO BG JP USA 0.00 HC SC RC 0.10 0.20 0.30 0.40 0.50 0.60 0.70 Value of Intellectual Capital - 2001 FI SE DK BE AT UK LU NL DE FR IE CY EE EUSI LV CZ ES HU LT SK PT PL IT RO EL BG TR MT JP USA 0.00 HC SC RC 0.10 0.20 0.30 0.40 0.50 0.60 0.70 Value of Intellectual Capital - 2007 SE FI DK LU UK BE AT EE DE NL CY FR IE SI LV EUCZ LT ES HU PL IT SK PT EL MT BG RO TR JP USA 0.00 HC SC RC 0.10 0.20 0.30 0.40 0.50 0.60 0.70 ASSETS Human capital HCA-1: youth educational attainment (20-24) HCA_2: population with tertiairy education HCA_3: occupations and skills in the information economy HCA_4: PISA scores HCA_6: drop outs HCA_5: Life expectancy at birth Structural capital Relational capital SCA_1: Broadband penetration SCA_3: scientific publications SCA_4: patent applications SCA_5: patents in environment-related technologies RCA_1: Innovative SME’s co-operating with others RCA_2: collaboration with public research organizations by innovating firms RCA_3: international collaboration in science RCA_4: foreign collaboration on innovation SCA_2: Entrepreneurship Birth and Death Rates of enterprises SCA_6: Electricity generated from renewable sources SCA_7: Venture capital investments - early stage SCA_8: Venture Capital INVESTMENT Human capital Structural capital Relational capital HCI_1: investment in knowledge HCI_2: expenditure on education per student HCI_3: expenditure on education as percentage of GDP HCI_4: participation in life-long learning HCI_5:adult training SCI_1: Gross domestic expenditure on R&D SCI_2: public investment in R&D SCI_3: private investment in R&D SCI_5: SME’s innovating in house SCI_6: ICT expenditures SCI_7: SME’s using organizational innovation SCI_8: non-technological Innovation RCI_1: government financed business R&D RCI_2: foreign funding of R&D RCI_3: foreign business investments RCI_4: Business-funded R&D in the higher education and government sectors RCI_5: private investment in education SCI_4: Business investment EFFECTS Human capital Structural capital HCE_2: employment rate SCE_1: Labour HCE_3: employment rate productivity of older workers HCE_4: employment rate of women HCE_1: GDP per capita in Purchasing Power Standards SCE_2: Total greenhouse gas emissions SCE_3: Energy intensity of the economy SCE_4: Total primary energy supply per capita Relational capital RCE_1: number of foreign students RCE_3: number of international researchers RCE_5: % patents with foreign co-inventors Value of Intellectual Capital – 2007 Assets FI SE DK CY UK LU BE NL EE DE FR SI AT LT IE LV EU-27 CZ IT PL SK HU ES EL BG PT RO MT TR JP USA 0.00 HCA SCA RCA 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 Value of Intellectual Capital – 2007 Investments USA DK EE SE FI LV AT DE BE FR LU NL JP SI UK EUCY CZ LT MT HU IE PL SK ES TR IT PT BG EL RO 0.00 HCI SCI RCI 0.10 0.20 0.30 0.40 0.50 0.60 0.70 Value of Intellectual Capital – 2007 Effects LU SE UK DK FI IE AT BE NL DE FR CZ EU-27 ES CY EE EL PT LT SI LV HU MT IT BG PL SK RO TR JP USA 0.00 HCE SCA RCA 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80 a) HCA_1 Youth education attainment level (2001, 2007) b) HCA2 Tertiary-type A graduation rates (2001, 2005) Percentage of the population aged 20 to 24 having completed at least upper secondary education Percentage of tertiary-type A graduates to the population at the typical age of graduation 100 2001 50 2007 2001 90 45 80 40 70 35 % 60 2005 30 % 50 25 40 20 30 15 20 10 10 5 0 TR PT MT ES DK LU DE NL IT RO UK EU- LV EE EL FR BE BG HU AT CY FI 27 IE SE LT SK SI PL CZ 0 TR c) HCA4 OECD's Programme for International Student Assessment (PISA; 2000, 2006) SI DE AT CZ EL SK PT ES EU-27 USA JP HU SE IE UK IT NL PL DK d) HCA5 Life expectancy at birth (2001, 2005) Number of years Assessment student knowledge & skills at age 15 600 84 2000 2001 2006 2005 82 500 80 78 Year Index 400 300 76 74 72 200 70 68 100 66 64 0 RO BG TR EL IT PT ES USA SK LV LU EU- HU FR PL DK UK CZ AT SE DE SI 27 IE BE JP NL FI TR HU SK PL CZ SI USA DK PT EU- BE 27 FI DE UK EL LU NL AT IE FR IT SE ES JP a) HCI2 Annual expenditure on educational inst. per student for all services (1995, 2004) b) HCI3 Expenditure on educational institutions (2000, 2004) In equivalent US dollars converted using Purchasing Power Parities for GDP, based on full-time equivalents In percentage of GDP 80 8 1995 2004 2000 70 7 60 6 50 2004 HCI3 Expenditure on educational institutions (2000 - 2004) 5 % $ 40 4 30 3 20 2 10 1 0 TR SK UK EE BE PL SI EL PT CZ ES HU IE EU- DK SE 27 IT USA FI 0 JP NL FR LU DE AT EL TR IE ES JP SK CZ IT EE NL DE PT AT EU- HU 27 UK PL FI BE c) HCI4 Life-long learning (adult participation in education and training) (2001, 2007) d) HCI5 Employee Training (2008) Percentage of adult population aged 25 to 64 participating in education and training (Substitution from IMD Competitiveness Yearbook 2009) FR SI SE DK USA Number of hours 35 9 2001 2007 8 30 7 25 6 20 5 % % 4 15 3 10 2 5 1 0 0 BG RO TR EL HU SK PT PL LT CZ MT IT EE LU LV BE FR IE DE CY EU- ES AT 27 SI NL FI DK EL IT PT BG ES RO TR PL UK SK CZ HU SI FR EU- FI LT IE USA EE BE DE LU AT NL SE JP DK 27 a) HCE1 GDP per capita in PPS (2001, 2007) b) HCE2 Employment rate of persons aged 15 to 64 (2001, 2007) GDP per capita in Purchasing Power Standards (PPS) (EU-27=100) In percentage of the total population of the same age group 90 300 2001 2001 2007 2007 80 250 70 60 200 50 % 150 40 30 100 20 50 10 0 0 TR MT PL HU IT RO SK EL BG BE LU FR LT ES EU- CZ PT SI LV IE DE EE FI JP CY UK AT USA SE NL DK 27 BG RO TR PL LV LT HU SK EE PT MT CZ SI CY EL EU- IT ES FR JP DE UK FI BE SE DK AT NL IE USA LU 27 c) HCE3 Employment rate of older workers (=aged 55 to 64; 2001, d) HCE4 Employment rate of female persons aged 15 to 64 (2001, 2007) 2007) In percentage of the total population of the same age group In percentage of the total female population of the same age group 80 80 2001 2007 2001 70 70 60 60 2007 50 50 % % 40 40 30 30 20 20 10 10 0 0 MT TR PL LU HU SI IT BE SK FR AT RO EL BG ES EU- CZ NL PT DE LT IE FI CY UK LV DK EE USA JP SE 27 TR MT IT EL PL HU RO SK ES LU BE CZ BG EU- JP FR IE PT LT CY SI DE AT LV UK EE USA FI NL SE DK 27 Turkish Economy - 16th in the World (Tril. USD, 2008) Source: IMF, World Economic Outlook And 6th in Europe.. (Tril. USD, 2008) Source: IMF, World Economic Outlook Turkey’s demographic window of opportunity.. Will more or less be wiped out by 2050… Source: Treasury Turkish Economy since 2001 • Since 2001 Turkish economy experienced a dramatic recovery • Thanks to institutional and macro reforms (e.g., banking reforms, adopting a flexible exchange rate, sticking to fiscal adjustment) • A very pragmatic government that has sticked to EU membership goal and the IMF program • A very benign international environment for emerging markets (the availability of large sums of international capital flows) • However, the supply-side (micro) structural reforms did not follow through, • The growth rate started to decline since 2006… Government budget deficit declined substantially since 2001.. Thanks to sustained fiscal discipline public sector debt stock declined substationally since 2001 crisis Conquest of inflation Long View: Inflation (12-month; %) 140 120 100 80 60 40 20 0 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 Conquest of inflation thanks to fiscal discipline.. 40 TÜFE ÜFE 35 30 25 20 15 10 5 0 01/03 07/03 01/04 07/04 01/05 07/05 01/06 07/06 01/07 07/07 01/08 07/08 01/09 -5 Interest rates (%) R&D Expenditure per capita (USD, PPP) R&D Human Resources (1000) Number of Scientific Publications (per million people) International Patent Applications But increased difficulty in sustaining high growth rates recently 10 8 6 4 2 0 1990 -2 -4 -6 1995 2000 2005 Share of Agriculture in employment declined dramatically since 2002 … Unemployment increased to a higher plateau after the 2001 crisis, and yet another one after the global crisis… 16 15 14 13 12 11 10 9 8 7 6 5 unemployment rate 4-q moving average Turkish growth is driven by domestic demand… Source: Treasury Billion USD Trade deficit continued to rise 250 200 Exports Imports 150 100 50 0 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 Current account deficit financed by capital inflows… 45 35 25 bn. USD 15 5 -5 2000 2001 2002 2003 2004 -15 -25 -35 Current Acct. Capital Acct. -45 BoP 2005 2006 2007 2008 The rapid increase in CA deficit is also due to rapidly increasing energy prices since 2002 Since 2001 composition of Capital Inflows changed for the better… Source: Treasury Since Dec. 2004 a tremendous increase in FDI inflows 25 bn. USD 20 15 10 5 0 1990 1993 1996 1999 2002 2005 2008 Recent Performance of Sectors (groups based on technology intensity) (Compounded Annual Average Rate of Change) a) 2001-2005 35 b) 2005-2007 30 30 25 25 20 20 15 15 10 10 5 5 0 High 0 -5 High upper middle lower middle low -5 -10 -10 Production Productivity Real Wages Exports -15 upper middle lower middle low Crisis and Worldwide Recession 6 6 5.1 4 3.1 3 2008 2 2009 1.7 1.5 1.3 0.6 2010 0.7 0.4 1.7 0.3 0 1 -2 2 3 4 5 -0.7 -1.1 -2.7 -4 -3.4 -4.2 -6 -5.4 6 Post-1990 Crises – Impact on Turkish Trade 1994 (January 1994) 2001 (January 2001) 2008 (September 2008) Economic Crises and Imports Toplam ithalat 0.40 0.20 0.00 0 1 2 3 4 5 6 7 2001 2008 -0.20 -0.40 -0.60 -0.80 -1.00 -1.20 1994 8 9 10 11 12 Economic Crises and Exports Toplam ihracat 0.40 0.30 0.20 0.10 0.00 0 1 2 3 4 5 6 7 2001 2008 -0.10 -0.20 -0.30 -0.40 1994 8 9 10 11 12 Industrial production declined by an average of 16% in the first eight months.. 20 15 2007 2008 2009 10 5 0 1 -5 -10 -15 -20 -25 2 3 4 5 6 c 7 8 9 10 11 12 Since the beginning of the crisis a dramatic shift in balance of payments… 45 Current Acct. Finance Acct. Errors&Omissions Balance of Payments 35 25 bn. dollar 15 5 -5 -15 -25 -35 -45 2007 2008 Oct 08 - Jul 09 The heavy burden of the crisis on Turkish economy Impact through the trade and finance channels. Collapse of the EU demand led to 35% decline in exports, As the Euro Area economy is expected to shrink around 4% in 2009, the demand for Turkish exports will stay weak, Turkish economy is likely to contract in double digits in the first quarter, and more than 6% in 2009 Government has recently taken a series of fiscal policy actions Monetary policy turned into expansionary gear rapidly Would they be sufficient to bring Turkish economy out of the woods? After the crisis: Slow recovery for the Turkish economy The recovery will be slow, thanks to strong headwinds from the trade and finance channels IIF forecasts sharp decline in private capital flows to EMs in 2009 ($165 bn compared to $920 bn and $465 bn in 2007 and 2008) Net capital outflows would mean that a strong pick up in domestic demand is unlikely in 2010. The fiscal deficit is worsening rapidly raising doubts about the sustainability of public sector debt in the long run Thank You Indeed Turkey unable to sustain high growth rates since 1940s Annual growth rate of GDP per capital, 1926-2005 (5-year moving averages) 10 Annual growth rate (%) 5 0 1925 -5 1935 1945 1955 1965 1975 1985 1995 2005 Turkey – Demographic Indicators (2008) Land Area (km²) Population (Million) Rate of Population Growth Density (km²) Urban Population Average Age Population Aged 15-64 Labor Force (Million) Unemployment Rate Labor Force Participation Female Labor Force Participation 774,820 71.5 1.31% 92.3 62.2% 28.4 66.4% 24.6 10.9% 49.1% 26.2% 18 16 14 12 10 8 6 4 2 0 01/08 03/08 05/08 07/08 09/08 11/08 01/09 03/09 05/09 Turkey – Major Economic Indicators 2004 2005 2006 2007 2008 390 481 526 657 742 Real GDP Growth 9.4 8.4 6.9 4.5 2.3 CPI 9.3 7.7 9.7 8.4 10.6 WPI 13.8 2.7 11.6 5.9 8.1 Export (Billion $) 63.2 80.2 85.5 107.2 131.8 Import (Billion $) 97.5 116.8 139.6 170 201.6 -34.3 -36.6 -54.1 -62.8 -69.8 13.4 15.3 14.1 15.2 22.0 0.8 0.85 1.1 1.2 1.2 -3.7 -4.6 -6.1 -5.8 -5.3 GNP (Billion $) Foreign Trade Balance Tourism Revenues Workers Remittances Current Account Bal./GDP Factors adversely effecting Turkey’s Competitiveness Turkey Poland Czech Rep. Hungary Share of high technology export (%, 2006) 1.50 3.81 14.10 23.99 Ratio of illiterates (%, + 15 age, 2005) 12.6 1 1 1 25.80 11.66 17.53 10.61 Telecommunication investments (ratio to GDP, 2006) 0.22 0.72 0.44 0.37 Number of internet users (per 1000 population, 2007) 241 413 587 443 Electricity cost in industry ($/kwh, 2006) 0.10 0.073 0.094 0.105 Human Development Index (2005) 0.78 0.87 0.89 0.87 83 260 375 306 Life expectancy at birth (2005) 71.5 75.0 76.0 73.0 R&D investments (USD per capita, 2006) 39.7 49.8 215.1 112.1 Pupil/teacher ratio in primary education (%, 2005) Number of computers (per 1000 population, 2007) Source: IMD World Competitiveness Report, 2008 HCA6 Early school leavers (2001, 2007) Percentage of the population aged 18-24 with at most lower secondary education and not in further education or training 70 2001 2007 60 50 40 % 30 20 10 0 SI PL SK FI LT AT HU IE NL BE DK CY DE FR EE EL EU- LU LV BG RO IT ES PT MT TR 27 b) SCA3 Scientific articles (1993 - 2003) a) SCA1 Broadband penetration rate (2001 - 2007) Number of articles per million population Number of broadband access lines per 100 inhabitants 1200 40 1993 2007 number of articles per million inhabitant 2002 number of access lines 35 30 25 20 15 10 5 0 1000 800 600 400 200 0 TR BG RO EL PL SK CY HU LV CZ LT MT PT SI IE IT ES EU- AT EE DE FR UK BE LU SE FI NL DK 27 RO LU TR SK PL HU PT CZ EL ES IT IE JP SI EU- FR DE AT BE USA UK NL DK FI 27 c) SCA4 Patent applications to the European Patent Office (EPO) (2001 - 2004) d) SCA5 Countries' share in environment-related technology patents filed under Patent Co-operation Treaty (2004) Number of applications per million inhabitants In percentage 300 number of applications per million inhabitants 2003 30 2001 2004 250 25 200 20 % 150 15 100 10 50 5 0 0 RO BG TR LT SK PL PT EL CZ MT ES SI IE IT EU- UK USA FR BE AT JP DK FI LU SE NL DE 27 EE CY MT LV RO LT SK SI LU PT EL CZ BG TR IE HU PL ES FI BE AT NL EU- DK IT SE FR UK USA DE JP 27 SE b) SCA8 Venture Capital (2004 - 2008) a) SCA6 Electricity generated from renewable sources (2001-06) being easily available for business development maximum number is 7,85) In percentage gross electricity consumption 9 80 2001 2004 2006 2008 8 70 7 60 6 index 50 % 40 5 4 30 3 20 2 10 1 0 0 CY EE PL LU LT UK CZ NL IE BG FR IT EU-27 SI TR RO LV SE AT TR HU IT CZ RO PT JP EL SI BG SK PL ES AT FR LT EU- DE EE BE LU FI UK IE DK NL SE USA 27 c) SCI1 Gross domestic expenditure on R&D (GERD) (2001-06) d) SCI2 Gross domestic expenditure on R&D financed by government (2001 - 2005) In percentage of GDP Percentage of R&D expenditure financed by government 80 5 2001 2001 2006 4 70 4 60 3 2005 50 % 3 % 40 2 30 2 20 1 10 1 0 0 CY RO BG SK MT PL EL TR LV LT PT HU EE ES IE EU- LU CZ SI NL BE FR DK AT DE USA FI SE 27 LU JP SE BE FI DK DE USA MT IE UK AT SI FR CZ EU- ES EE LV EL HU TR IT RO PT SK PL LT BG CY 27 a) SCI3 Gross domestic expenditure on R&D financed by industry (2001 - 2005) b) SCI4 Business investment (2001 - 2007) Gross fixed capital formation by the private sector as a percentage of GDP Percentage of R&D expenditure financed by industry 30 90 2001 2001 2005 2007 80 25 70 20 60 % 50 % 15 40 30 10 20 5 10 0 0 CY LT BG EL PL LV PT SK RO EE HU IT UK TR AT EU- ES FR CZ MT SI IE DK BE USA SE FI DE JP LU 27 SE LU UK NL HU FI FR PL IT CZ PT AT BE EU- DK 27 IE LT TR EL c) SCI5 In-house innovations SME's (2004) d) SCI6 ICT expenditure (2004) As a percentage of all SME's In percentage of GDP 40 SK BG LV ES EE 4 35 4 30 3 25 3 % % 20 2 15 2 10 1 5 1 0 SE JP UK NL USA FI TR CZ DK FR EE IE DE TR AT LU BE BE PL AT SK DE EU-27 EL HU SE SI PT EU-27 DK LV FI RO CZ PT FR BG ES IT IT LT NL IE PL EL SK ES 0 HU b) SCI8 Non-technological innovation by size and sector of firms (2008) a) SCI7 SME's using organizational innovation (2004) In percentage of all SME's As a percentage of all firms 80 70 70 60 60 50 50 40 % 40 % 30 30 20 20 10 10 0 0 BG SK RO HU PL LT NL ES MT IT EU27 CZ FR BE EE EL PT CY AT IE TR DE DK BG LU SK IE LT NL PL ES UK MT RO CZ IT EU27 HU FR BE DK EE TR CY PT AT LU DE c) SCE1 Labour productivity per person employed (2001- 2007) d) SCE2 Total greenhouse gas emissions (2001 - 2005) GDP in Purchasing Power Standards (PPS) per person employed relative to EU-27 (EU-27 = 100) Index of greenhouse gas emissions and targets - In CO2 equivalents (Actual base year = 100) 200 200 2001 2005 2001 2007 180 180 160 160 140 140 120 Index Index 120 100 100 80 80 60 60 40 40 20 20 0 0 BG RO TR LV LT PL EE PT CZ HU SK CY SI MT EU- ES EL DE DK IT UK SE NL FI AT FR BE IE USA LU 27 LV LT EE BG RO HU SK PL CZ DE UK DK SE EU- FI BE FR NL LU SI JP IT USA AT EL IE PT ES MT CY TR 27 a) SCE3 Energy intensity of the economy (2001 - 2005) b) SCE4 Total primary energy supply per capita (2006) Gross inland consumption of energy divided by GDP (kilogram of oil equivalent per 1000 Euro) Tonnes of oil equivalent (toe) per capita 12 2500 2001 2005 10 2000 8 1500 6 1000 4 500 2 0 0 TR DK JP IE AT DE FR LU IT NL UK SE BE ES EL PT FI CY MT USA SI TR EU- HU PL LV CZ SK LT EE RO BG 27 PT PL EL HU IT ES SK DK UK IE JP AT DE EU27 FR CZ NL BE SE FI USA LU c) RCA1 Innovative SME's co-operating with others (2008) d) RCI1 Government-financed R&D in business (1995 - 2005) In percentage of all SME's In percentage of R&D performed in the business sector 30 40 1995 2005 35 25 30 20 25 % % 15 20 15 10 10 5 5 0 0 RO BG IT ES TR LV MT HU PT SK EL DE PL EU- LT UK FR CZ IE NL DK LU SI SE BE AT EE CY FI 27 JP DK LU NL FI IE HU TR EL PT BE DE SE AT EU- UK 27 FR USA ES PL IT CZ SK b) RCI3 Foreign Direct Investments inflows (2005) a) RCI2 Gross domestic expenditure on R&D financed by abroad (2001 - 2005) In percentage of GDP Percentage of R&D expenditure financed by abroad 12 35 2001 2005 10 30 25 8 % 20 6 % 15 4 10 2 5 0 0 JP TR LU DE CZ PT RO ES PL SK FI SI FR BG SE IT IE EU- DK 27 LT HU CY BE MT EE AT LV EL JP UK EL IT USA TR AT DE FR PT FI PL ES SE EU-27 UK DK HU IE SK NL CZ c) RCI4 Business-funded R&D in the higher education and d) RCI5 Public-private investment in education (2003 - 2004) government sectors (1995 - 2005) Share of public expenditure on educational institutions (%) As a percentage of R&D performed in these sectors (combined) 8 2003 30 1995 2005 2004 7 25 6 20 5 % % 4 15 3 10 2 5 1 0 0 IT JP DK USA PT IE FR AT SE SK CZ EL UK EU27 ES DE LU FI NL PL BE HU TR EL TR IE ES JP SK CZ IT NL DE PT AT EU- HU 27 UK PL FI BE FR SE DK USA BE a) RCE1 Foreign students (2000 - 2005) b) RCE3 International Researchers Number of foreign students in tertiary education, per 1000 inhabitants Total R&D personnel and Researchers as % of labour force and total employment 6 4 2000 2005 2001 2005 3 5 3 4 2 3 % 2 2 1 1 1 0 0 TR PL SK SI EE IT JP ES HU EL LU FI PT CZ NL USA EU27 IE DE DK FR AT SE BE UK c) RCE5 International co-operation in research - Patents with foreign co-inventors (1993 - 2005) Patent applications with at least one foreign co-inventor, as a percentage of total patents invented domestically 90 1993 2005 80 70 60 50 % 40 30 20 10 0 JP IT USA DE FI SE FR NL SI DK ES UK EU27 AT TR EL IE BE HU PL CZ LU TR RO BG CY PL PT LV SK MT LT IT HU EE SI CZ EL EU- NL ES 27 IE FR DE JP BE AT DK LU SE FI