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Sustaining High Growth: The Role of Domestic Savings

Available in: Türkçe
Overview

Domestic saving in Turkey fell to a low of 12.7 percent of GDP in 2010, the lowest rate since 1980. Low domestic saving matters for at least two reasons. First, domestic savings finance investment and thus growth. Cross-country data suggest a positive association, especially for developing countries, between saving, investment, and growth. Second, the low level of domestic saving has increased dependence on foreign financing of Turkish investments, fueling an expansion in the external current account deficit and jeopardizing the sustainability of growth. This dependence on foreign savings has exposed Turkey to the risk of capital reversal, with attendant adverse impact on economic growth.

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Overview
Full Report

Section I: Introduction
This report analyzes the determinants of domestic saving in Turkey and provides policy options for increasing saving, particularly long-term saving. It summarizes work on household, corporate, and public sector saving...

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Section II: Saving Trends in Turkey in International Comparison
Turkey’s average saving rate, though it has plunged in recent years, is still generally in line with rates in middle-income countries. High-income countries have the highest saving rates in the world. Moreover, the median non-OECD high-income country increased its saving rate significantly between the 1990s and the 2000s, from 23 percent of GNDI to 33 percent of GNDI. The median upper-middle-income and lower-middle-Income countries have similar saving rates of somewhat less than 20 percent of GNDI. Turkey’s saving rate is higher than the low-income group but lower than the OECD countries...

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Section III: Why Does Domestic Saving Matter for Turkey?
Low domestic saving jeopardizes the sustainability of high growth in Turkey. The relationship between saving and investment (depending on its nature and strength) constitutes a potential channel for transmitting savings into growth. However, irrespective of this degree of association, an increase in the share of domestic financing of growth has also a potentially important role of mitigating external vulnerability...

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Section IV: Determinants of Saving in Turkey
This section investigates determinants of domestic saving, focusing first on aggregate public and private saving and then on household and corporate saving. Using the estimated coefficients in the study of Loayza, Schmidt-Hebbel, and Servén (2000) and data from Turkey, mainly four variables explain Turkey’s private saving rate since 1998: the real interest rate, the gross private disposable income, the young age dependency ratio, and the inflation rate. In particular for the determinants of household savings, the section examines precautionary motives, life cycle events, education, employment rate and the female labor force participation rate. Finally, it concludes with the discussion of determinants of firm saving rates and net profit margins in Turkey...

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Section V: The Role of Financial Markets in Intermediating Savings in Turkey

International comparison suggests there is room for Turkish financial markets to grow. At the end of 2009, the size of Turkey’s financial markets as percentage of GDP was 164.1 percent compared with 460 percent for Malaysia and 260 percent for Thailand (Figure 24). Turkey’s financial markets are also smaller than in G-20 countries, such as Brazil (295.8 percent) and South Korea (341.4 percent). The segments that are substantially smaller in Turkey are the equity and bond markets...

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Section VI: Policy Options

There could be high returns to policies that (i) raise awareness about the benefits of saving, particularly long-term, and (ii) elevate the level of financial literacy of households. On the supply side, the intermediation role of financial markets is central. Special saving schemes, based on successful examples elsewhere, could be instrumental in attracting new savings...

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