Intellectual Capital of Turkey

Kamil Kamil Yılmaz Yılmaz Koç Koç UUniversitniversityy

TEPEK National Event TEPEK National Event

Bilkent University, AnkaraBilkent University, Ankara

October 9, 20October 9, 200099

Turkey’s Participation in the European Knowledge Economy

Value of Intellectual Capital - 1995

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70

USAJP

BGROMTTRLTELIT

PTESHUPLLVSKEU-CZIE

EESI

LUFRCYBENLDEATUKDKFI

SE

HC

SC

RC

Value of Intellectual Capital - 2001

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70

USAJPMTTRBGELRO

ITPLPTSKLTHUESCZLVSI

EU-EECY

IEFRDENLLUUKATBEDKSEFI

HC

SC

RC

Value of Intellectual Capital - 2007

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70

USAJPTRROBGMTELPTSKIT

PLHUESLTCZEU-LVSIIE

FRCYNLDEEEATBEUKLUDKFI

SE

HC

SC

RC

ASSETS

Human capital Structural capital

Relational capital

HCA-1: youth educational attainment (20-24)HCA_2: population with tertiairy educationHCA_3: occupations and skills in the information economyHCA_4: PISA scoresHCA_6: drop outs

HCA_5: Life expectancy at birth

SCA_1: Broadband penetrationSCA_3: scientific publicationsSCA_4: patent applicationsSCA_5: patents in environment-related technologies

SCA_2: Entrepreneurship - Birth and Death Rates of enterprisesSCA_6: Electricity generated from renewable sources SCA_7: Venture capital investments - early stageSCA_8: Venture Capital

RCA_1: Innovative SME’s co-operating with othersRCA_2: collaboration with public research organizations by innovating firmsRCA_3: international collaboration in scienceRCA_4: foreign collaboration on innovation

INVESTMENT

Human capital

Structural capital

Relational capital

HCI_1: investment in knowledgeHCI_2: expenditure on education per studentHCI_3: expenditure on education as percentage of GDPHCI_4: participation in life-long learningHCI_5:adult training

SCI_1: Gross domestic expenditure on R&DSCI_2: public investment in R&DSCI_3: private investment in R&DSCI_5: SME’s innovating in houseSCI_6: ICT expendituresSCI_7: SME’s using organizational innovationSCI_8: non-technological Innovation

SCI_4: Business investment

RCI_1: government financed business R&DRCI_2: foreign funding of R&DRCI_3: foreign business investments RCI_4: Business-funded R&D in the higher education and government sectorsRCI_5: private investment in education

EFFECTS

Human capital

Structural capital

Relational capital

HCE_2: employment rateHCE_3: employment rate of older workersHCE_4: employment rate of women

HCE_1: GDP per capita in Purchasing Power Standards

SCE_1: Labour productivity

SCE_2: Total greenhouse gas emissionsSCE_3: Energy intensity of the economySCE_4: Total primary energy supply per capita

RCE_1: number of foreign studentsRCE_3: number of international researchersRCE_5: % patents with foreign co-inventors

Value of Intellectual Capital – 2007 Assets

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80

USAJPTRMTROPTBGELESHUSKPLIT

CZEU-27

LVIE

LTATSI

FRDEEENLBELUUKCYDKSEFI

HCA

SCA

RCA

Value of Intellectual Capital – 2007Investments

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70

ROELBGPTIT

TRESSKPLIE

HUMTLTCZCYEU-UKSIJPNLLUFRBEDEATLVFI

SEEEDK

USA

HCI

SCI

RCI

Value of Intellectual Capital – 2007Effects

0.00 0.10 0.20 0.30 0.40 0.50 0.60 0.70 0.80

USAJPTRROSKPLBG

ITMTHULVSILTPTELEECYES

EU-27CZFRDENLBEATIEFI

DKUKSELU

HCE

SCA

RCA

d) HCA5 Life expectancy at birth (2001, 2005)

Number of years

a) HCA_1 Youth education attainment level (2001, 2007)

Percentage of the population aged 20 to 24 having completed at least upper secondary

education

b) HCA2 Tertiary-type A graduation rates (2001, 2005)

Percentage of tertiary-type A graduates to the population at the typical age of graduation

c) HCA4 OECD's Programme for International Student Assessment (PISA; 2000, 2006)

Assessment student knowledge & skills at age 15

0

10

20

30

40

50

60

70

80

90

100

TR PT MT ES DK LU DE NL IT RO UK EU-27

LV EE EL FR BE BG HU AT CY FI IE SE LT SK SI PL CZ

%

2001 2007

0

5

10

15

20

25

30

35

40

45

50

TR SI DE AT CZ EL SK PT ES EU-27 USA JP HU SE IE UK IT NL PL DK

%

2001 2005

0

100

200

300

400

500

600

RO BG TR EL IT PT ES USA SK LV LU EU-27

HU FR PL DK UK CZ AT SE DE SI IE BE JP NL FI

Inde

x

2000 2006

64

66

68

70

72

74

76

78

80

82

84

TR HU SK PL CZ SI USA DK PT EU-27

BE FI DE UK EL LU NL AT IE FR IT SE ES JP

Year

2001 2005

a) HCI2 Annual expenditure on educational inst. per student for all services (1995, 2004)

In equivalent US dollars converted using Purchasing Power Parities for GDP, based on full-time equivalents

b) HCI3 Expenditure on educational institutions (2000, 2004)

In percentage of GDP

c) HCI4 Life-long learning (adult participation in education and training) (2001, 2007)

Percentage of adult population aged 25 to 64 participating in education and training

0

10

20

30

40

50

60

70

80

TR SK UK EE BE PL SI EL PT CZ ES HU IE EU-27

DK SE IT USA FI JP NL FR LU DE AT

1995 2004

0

1

2

3

4

5

6

7

8

EL TR IE ES JP SK CZ IT EE NL DE PT AT EU-27

HU UK PL FI BE FR SI SE DK USA

%

2000 2004 HCI3 Expenditure on educational institutions (2000 - 2004)

0

5

10

15

20

25

30

35

BG RO TR EL HU SK PT PL LT CZ MT IT EE LU LV BE FR IE DE CY EU-27

ES AT SI NL FI DK

%

2001 2007

d) HCI5 Employee Training (2008)

Number of hours(Substitution from IMD Competitiveness Yearbook 2009)

0

1

2

3

4

5

6

7

8

9

EL IT PT BG ES RO TR PL UK SK CZ HU SI FR EU-27

FI LT IE USA EE BE DE LU AT NL SE JP DK

%

a) HCE1 GDP per capita in PPS (2001, 2007)

GDP per capita in Purchasing Power Standards (PPS) (EU-27=100)

b) HCE2 Employment rate of persons aged 15 to 64 (2001, 2007)

In percentage of the total population of the same age group

c) HCE3 Employment rate of older workers (=aged 55 to 64; 2001, 2007)

In percentage of the total population of the same age group

0

50

100

150

200

250

300

BG RO TR PL LV LT HU SK EE PT MT CZ SI CY EL EU-27

IT ES FR JP DE UK FI BE SE DK AT NL IE USA LU

2001 2007

0

10

20

30

40

50

60

70

80

90

TR MT PL HU IT RO SK EL BG BE LU FR LT ES EU-27

CZ PT SI LV IE DE EE FI JP CY UK AT USA SE NL DK

%

2001 2007

0

10

20

30

40

50

60

70

80

MT TR PL LU HU SI IT BE SK FR AT RO EL BG ES EU-27

CZ NL PT DE LT IE FI CY UK LV DK EE USA JP SE

%

2001 2007

d) HCE4 Employment rate of female persons aged 15 to 64 (2001, 2007)

In percentage of the total female population of the same age group

0

10

20

30

40

50

60

70

80

TR MT IT EL PL HU RO SK ES LU BE CZ BG EU-27

JP FR IE PT LT CY SI DE AT LV UK EE USA FI NL SE DK

%

2001 2007

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; %)

0

20

40

60

80

100

120

140

1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005

Conquest of inflation thanks to fiscal discipline..

-5

0

5

10

15

20

25

30

35

40

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

TÜFE ÜFE

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

-6

-4

-2

0

2

4

6

8

10

1990 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…

5

6

7

8

9

10

11

12

13

14

15

16

unemployment rate 4-q moving average

Turkish growth is driven by domestic demand…

Source: Treasury

Trade deficit continued to rise

0

50

100

150

200

250

1981 1984 1987 1990 1993 1996 1999 2002 2005 2008

Bill

ion

US

D

Exports Imports

Current account deficit financed by capital inflows…

-45

-35

-25

-15

-5

5

15

25

35

45

2000 2001 2002 2003 2004 2005 2006 2007 2008

bn

. U

SD

Current Acct.

Capital Acct.

BoP

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

0

5

10

15

20

25

1990 1993 1996 1999 2002 2005 2008

bn

. U

SD

Recent Performance of Sectors (groups based on technology intensity)

(Compounded Annual Average Rate of Change)

b) 2005-2007

-15

-10

-5

0

5

10

15

20

25

30

High upper middle lower middle low

a) 2001-2005

-10

-5

0

5

10

15

20

25

30

35

High upper middle lower middle low

Production Productivity Real Wages Exports

Crisis and Worldwide Recession

3

0.6 0.40.7

-0.7

6

-1.1

-3.4

-2.7

-4.2

-5.4

1.7

3.1

1.3 1.5

0.3

1.7

5.1

-6

-4

-2

0

2

4

6

1 2 3 4 5 6

2008 2009 2010

Post-1990 Crises – Impact on Turkish Trade

1994 (January 1994) 2001 (January 2001) 2008 (September 2008)

Economic Crises and Imports

Toplam ithalat

-1.20

-1.00

-0.80

-0.60

-0.40

-0.20

0.00

0.20

0.40

0 1 2 3 4 5 6 7 8 9 10 11 12

1994 2001 2008

Economic Crises and Exports

Toplam ihracat

-0.40

-0.30

-0.20

-0.10

0.00

0.10

0.20

0.30

0.40

0 1 2 3 4 5 6 7 8 9 10 11 12

1994 2001 2008

Industrial production declined by an average of 16% in the first eight

months..

-25

-20

-15

-10

-5

0

5

10

15

20

1 2 3 4 5 6 7 8 9 10 11 12

2007 2008 2009

c

Since the beginning of the crisis a dramatic shift in balance of

payments…

-45

-35

-25

-15

-5

5

15

25

35

45

2007 2008 Oct 08 - Jul 09

bn. d

olla

r

Current Acct. Finance Acct.

Errors&Omissions Balance of Payments

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)

-5

0

5

10

1925 1935 1945 1955 1965 1975 1985 1995 2005

Ann

ual g

row

th r

ate

(%)

Turkey – Demographic Indicators (2008)

Land Area (km²) 774,820 Population (Million) 71.5Rate of Population Growth 1.31%Density (km²) 92.3Urban Population 62.2%Average Age 28.4 Population Aged 15-64 66.4%Labor Force (Million) 24.6Unemployment Rate 10.9%Labor Force Participation 49.1%Female Labor Force Participation 26.2%

0

2

4

6

8

10

12

14

16

18

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

GNP (Billion $) 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

Foreign Trade Balance -34.3 -36.6 -54.1 -62.8 -69.8

Tourism Revenues 13.4 15.3 14.1 15.2 22.0

Workers Remittances 0.8 0.85 1.1 1.2 1.2

Current Account Bal./ GDP -3.7 -4.6 -6.1 -5.8 -5.3

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

Pupil/teacher ratio in primary education (%, 2005) 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

Number of computers (per 1000 population, 2007) 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 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

0

10

20

30

40

50

60

70

SI PL SK FI LT AT HU IE NL BE DK CY DE FR EE EL EU-27

LU LV BG RO IT ES PT MT TR

%

2001 2007

a) SCA1 Broadband penetration rate (2001 - 2007)

Number of broadband access lines per 100 inhabitants

b) SCA3 Scientific articles (1993 - 2003)

Number of articles per million population

c) SCA4 Patent applications to the European Patent Office (EPO) (2001 - 2004)

Number of applications per million inhabitants

0

5

10

15

20

25

30

35

40

TR BG RO EL PL SK CY HU LV CZ LT MT PT SI IE IT ES EU-27

AT EE DE FR UK BE LU SE FI NL DK

num

ber o

f acc

ess

lines

2002 2007

0

200

400

600

800

1000

1200

RO LU TR SK PL HU PT CZ EL ES IT IE JP SI EU-27

FR DE AT BE USA UK NL DK FI SE

num

ber o

f art

icle

s pe

r mill

ion

inha

bita

nt

1993 2003

0

50

100

150

200

250

300

RO BG TR LT SK PL PT EL CZ MT ES SI IE IT EU-27

UK USA FR BE AT JP DK FI LU SE NL DE

num

ber o

f app

licat

ions

per

mill

ion

inha

bita

nts

2001 2004

d) SCA5 Countries' share in environment-related technology patents filed under Patent

Co-operation Treaty (2004)

In percentage

0

5

10

15

20

25

30

EE CY MT LV RO LT SK SI LU PT EL CZ BG TR IE HU PL ES FI BE AT NL EU-27

DK IT SE FR UK USA DE JP

%

a) SCA6 Electricity generated from renewable sources (2001-06)

In percentage gross electricity consumption

b) SCA8 Venture Capital (2004 - 2008)

being easily available for business development maximum number is 7,85)

c) SCI1 Gross domestic expenditure on R&D (GERD) (2001-06)

In percentage of GDP

0

10

20

30

40

50

60

70

80

CY EE PL LU LT UK CZ NL IE BG FR IT EU-27 SI TR RO LV SE AT

%

2001 2006

0

1

2

3

4

5

6

7

8

9

TR HU IT CZ RO PT JP EL SI BG SK PL ES AT FR LT EU-27

DE EE BE LU FI UK IE DK NL SE USA

inde

x

2004 2008

0

1

1

2

2

3

3

4

4

5

CY RO BG SK MT PL EL TR LV LT PT HU EE ES IE EU-27

LU CZ SI NL BE FR DK AT DE USA FI SE

%

2001 2006

d) SCI2 Gross domestic expenditure on R&D financed by government (2001 - 2005)

Percentage of R&D expenditure financed by government

0

10

20

30

40

50

60

70

80

LU JP SE BE FI DK DE USA MT IE UK AT SI FR CZ EU-27

ES EE LV EL HU TR IT RO PT SK PL LT BG CY

2001 2005

a) SCI3 Gross domestic expenditure on R&D financed by industry (2001 - 2005)

Percentage of R&D expenditure financed by industry

b) SCI4 Business investment (2001 - 2007)

Gross fixed capital formation by the private sector as a percentage of GDP

c) SCI5 In-house innovations SME's (2004)

As a percentage of all SME's

0

10

20

30

40

50

60

70

80

90

CY LT BG EL PL LV PT SK RO EE HU IT UK TR AT EU-27

ES FR CZ MT SI IE DK BE USA SE FI DE JP LU

%

2001 2005

0

5

10

15

20

25

30

SE LU UK NL HU FI FR PL IT CZ PT AT BE EU-27

DK IE LT TR EL SK BG LV ES EE

%

2001 2007

0

5

10

15

20

25

30

35

40

HU SK PL NL IT ES FR CZ FI PT EU-27 DK SE EL DE AT BE LU TR IE

%

d) SCI6 ICT expenditure (2004)

In percentage of GDP

0

1

1

2

2

3

3

4

4

EL ES IE IT LT PT BG RO SI LV HU SK

EU-2

7 PL AT BE DE EE FR CZ

DK FI TR NL

USA JP U

K SE

%

a) SCI7 SME's using organizational innovation (2004)

In percentage of all SME's

b) SCI8 Non-technological innovation by size and sector of firms (2008)

As a percentage of all firms

c) SCE1 Labour productivity per person employed (2001- 2007)

GDP in Purchasing Power Standards (PPS) per person employed relative to EU-27 (EU-27 = 100)

0

10

20

30

40

50

60

70

BG SK RO HU PL LT NL ES MT IT EU-27

CZ FR BE EE EL PT CY AT IE TR DE DK LU

%

0

10

20

30

40

50

60

70

80

BG SK IE LT NL PL ES UK MT RO CZ IT EU-27

HU FR BE DK EE TR CY PT AT LU DE

0

20

40

60

80

100

120

140

160

180

200

BG RO TR LV LT PL EE PT CZ HU SK CY SI MT EU-27

ES EL DE DK IT UK SE NL FI AT FR BE IE USA LU

Inde

x

2001 2007

d) SCE2 Total greenhouse gas emissions (2001 - 2005)

Index of greenhouse gas emissions and targets - In CO2 equivalents (Actual base year = 100)

0

20

40

60

80

100

120

140

160

180

200

LV LT EE BG RO HU SK PL CZ DE UK DK SE EU-27

FI BE FR NL LU SI JP IT USA AT EL IE PT ES MT CY TR

Inde

x

2001 2005

a) SCE3 Energy intensity of the economy (2001 - 2005)

Gross inland consumption of energy divided by GDP (kilogram of oil equivalent per 1000 Euro)

b) SCE4 Total primary energy supply per capita (2006)

Tonnes of oil equivalent (toe) per capita

c) RCA1 Innovative SME's co-operating with others (2008)

In percentage of all SME's

0

500

1000

1500

2000

2500

DK JP IE AT DE FR LU IT NL UK SE BE ES EL PT FI CY MT USA SI TR EU-27

HU PL LV CZ SK LT EE RO BG

2001 2005

0

2

4

6

8

10

12

TR PT PL EL HU IT ES SK DK UK IE JP AT DE EU-27

FR CZ NL BE SE FI USA LU

0

5

10

15

20

25

30

RO BG IT ES TR LV MT HU PT SK EL DE PL EU-27

LT UK FR CZ IE NL DK LU SI SE BE AT EE CY FI

%

d) RCI1 Government-financed R&D in business (1995 - 2005)

In percentage of R&D performed in the business sector

0

5

10

15

20

25

30

35

40

JP DK LU NL FI IE HU TR EL PT BE DE SE AT EU-27

UK FR USA ES PL IT CZ SK

%

1995 2005

a) RCI2 Gross domestic expenditure on R&D financed by abroad (2001 - 2005)

Percentage of R&D expenditure financed by abroad

b) RCI3 Foreign Direct Investments inflows (2005)

In percentage of GDP

c) RCI4 Business-funded R&D in the higher education and government sectors (1995 -

2005)

As a percentage of R&D performed in these sectors (combined)

0

5

10

15

20

25

30

35

JP TR LU DE CZ PT RO ES PL SK FI SI FR BG SE IT IE EU-27

DK LT HU CY BE MT EE AT LV EL UK

%

2001 2005

0

2

4

6

8

10

12

JP EL IT USA TR AT DE FR PT FI PL ES SE EU-27 UK DK HU IE SK NL CZ BE

%

0

5

10

15

20

25

30

IT JP DK USA PT IE FR AT SE SK CZ EL UK EU-27

ES DE LU FI NL PL BE HU TR

%

1995 2005

d) RCI5 Public-private investment in education (2003 - 2004)

Share of public expenditure on educational institutions (%)

0

1

2

3

4

5

6

7

8

EL TR IE ES JP SK CZ IT NL DE PT AT EU-27

HU UK PL FI BE FR SE DK USA

%

2003 2004

a) RCE1 Foreign students (2000 - 2005)

Number of foreign students in tertiary education, per 1000 inhabitants

b) RCE3 International Researchers

Total R&D personnel and Researchers as % of labour force and total employment

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

0

1

2

3

4

5

6

TR PL SK SI EE IT JP ES HU EL LU FI PT CZ NL USA EU-27

IE DE DK FR AT SE BE UK

2000 2005

0

1

1

2

2

3

3

4

TR RO BG CY PL PT LV SK MT LT IT HU EE SI CZ EL EU-27

NL ES IE FR DE JP BE AT DK LU SE FI

%

2001 2005

0

10

20

30

40

50

60

70

80

90

JP IT USA DE FI SE FR NL SI DK ES UK EU-27

AT TR EL IE BE HU PL CZ LU

%

1993 2005