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

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. 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)

5

8 12 12 16 20 21 23 24 33 35 36 37 37 37 38 38 56 51 50 46 41 40 37 36

10 20 30 40 50 60 70 80 90 100 1990 1995 2000 2005 2008 2009 2010 2011 North‐North North‐South South‐South Unspecified destinations

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

• pportunity 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?

8

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

Where does Turkey export?

9

0.00 0.10 0.20 0.30 0.40 0.50 0.60 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Decomposing the ROW share of Turkish export

TUC NAC MEC OTH

From where does Turkey import?

10

0.1 0.2 0.3 0.4 0.5 0.6 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 USA EUR RUS CHN IND ROW

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

12

• Demographic trends emphasized:

– In Turkey: Working age population/total population is growing – EU is ageing, (this is the opposite)

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)]

14

0.00 10.00 20.00 30.00 40.00 50.00 60.00 1950 1970 1990 2010 2030 2050 2070 2090 TUR USA EUR RUS CHN IND ROW

15

• 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
• One representative agent per age group who maximizes

lifetime utility (7 representative households in each region)

5 working-age generations 2 retired generations

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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)

0.5 1 1.5 2 2.5 2011 2031 2051 2071 2091

Total Population (normalised at 1 in 2011)

TUR USA EUR RUS CHN IND 0.00 10.00 20.00 30.00 40.00 50.00 60.00 1950 1990 2030 2070

OADR

TUR USA EUR RUS CHN IND

Impact of Pop ageing on GDP/Capita

3 2 1 4 43 4 42 1 4 43 4 42 1 43 42 1 3 2 1

Pop Total

• ver

Adult ion Participat Force Labor Rate Employment Effort ty Productivi

15 15 Force Labor Force Labor Employed # Employed # Hours Hours POP GDP POP GDP + × + × × × =

17

15+

# Employed

# Unemployed

Inactive& retired

Labor Force

0-15 POP

Discrimination against older Retirement Less productive Part time Less young (smalle Pop size)

(PRELIMINARY!) Demographically‐driven real GDP/POP

(abstracting from technical progress)

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80 85 90 95 100 105 110 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 TUR USA EUR RUS CHN IND ROW

Real Consumption per Capita

• Real Consumption is the difference between

real Production (GDP) and Saving

• Increase in GDP/POP increases CON/POP
• In a close economy with a single good, Pcon =PQ
• In an open economy, Pcon ≠PQ

⎭ ⎬ ⎫ ⎩ ⎨ ⎧ − × = POP Saving POP GDP P P POP CON

CON Q

3 2 1

Trade

• f

Terms

?

Real Consumption per Capita (Turkey)

– 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

⎭ ⎬ ⎫ ⎩ ⎨ ⎧ − × = POP Saving POP GDP P P POP CON

CON Q

3 2 1

Trade

• f

Terms

?

21

• 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?

⎭ ⎬ ⎫ ⎩ ⎨ ⎧ − × = POP Saving POP GDP P P POP CON

CON Q

3 2 1

Trade

• f

Terms

?

22

• But what will happen to savings?

⎭ ⎬ ⎫ ⎩ ⎨ ⎧ − × = POP Saving POP GDP P P POP CON

CON Q

3 2 1

Trade

• f

Terms

?

‐2 2 4 6 8 10 12

C/POP Q/POP Saving/POP

‐0.2 0.2 0.4 0.6 0.8 1 1.2 1.4 1.6 193019501970199020102030205020702090

Saving/POP INV/POP CA/POP ⎭ ⎬ ⎫ ⎩ ⎨ ⎧ − × = POP Saving POP GDP P P POP CON

CON Q

3 2 1

Trade

• f

Terms

After 2050

Demographically‐driven CON/POP

23

80 85 90 95 100 105 110 115 120 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 TUR USA EUR RUS CHN IND ROW

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

–incremental

(roughly 2.5% points every 10 year (2010‐ 2050)) –Permanent

0.1 0.2 0.3 0.4 0.5 0.6 1996 2006 2016 2026 2036 2046 2056 EUR share in TUR imports ROW share in TUR imports

26

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

Trade Diversification and Terms of Trade effect

27

0.97 0.975 0.98 0.985 0.99 0.995 1 1.005 1.01 1.015

Terms of trade (PQ/PCON)

Benchmark Trade Diversification

⎭ ⎬ ⎫ ⎩ ⎨ ⎧ − × = POP Saving POP GDP P P POP CON

CON Q

3 2 1

Trade

• f

Terms

Diversification scenario: CON/POP (Turkey)

28

90 95 100 105 110 115 120 125 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 Benchmark Trade Diversification

But, in an OLG model, …different age groups So, who gains, who loses?

Welfare of individual cohorts

PV of current and future consumption of cohorts (as of their first active working period)

29

0.5 1 1.5 2 2.5 3 3.5 4 4.5 5 1950 1970 1990 2010 2030 2050 2070 2090 ALCI benchmark Trade diversification

Social Welfare Function

Sum of welfare indices over cohorts alive during a specific period

30

1 2 3 4 5 6 7 ALCI benchmark Trade diversification

Outline

1. Global Trade Flows and Policy Debate in Turkey 2. Trade Diversification and Demographics / Results

• 3. Conclusion/Caveats

31

• Objective of paper

–Scenarios of trade diversification in the perspective of an ageing world

• Georges and Mérette (2010);
• Mérette 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

Em erging “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

⎭ ⎬ ⎫ ⎩ ⎨ ⎧ − × = POP Saving POP GDP P P POP CON

CON Q

3 2 1

Trade

• f

Terms

• If TOT deterioration is transitory: (Laursen-Metzler effect)
• Saving ↓ (CA ↓) and CON constant
• If TOT deterioration is permanent: (Obstfeld, 1982)
• CON decreases. Demographic shock (long-lasting)

⎭ ⎬ ⎫ ⎩ ⎨ ⎧ − × = POP Saving POP GDP P P POP CON

CON Q

3 2 1

Trade

• f

Terms

Laursen-Metzler debate:

36

Generations g ∈ G; gj ∈ GJ; gm ∈ GM

• ------------------ GJ-----------------
• ----GM-----

ORD (TTP) TTP g1 (GI) g2 g3 g4 g5 g6 g7 (GN) 1 1870 2 1880 3 1890 4 1900 5 1910 6 1920

• ------TP-------

7 1930(TI)

Popt,g Popt,g+1 Popt,g+2 Popt,g+3 Popt,g+4 Popt,g+5 Popt,g+6

8 1940

Popt+1,g Popt+1,g+1

9 1950

Popt+2,g Popt+2,g+2

10 1960

Popt+3,g Popt+3,g+3

11 1970

Popt+4,g Popt+4,g+4

12 1980

Popt+5,g+5

13 1990

Popt+6,g+6

14 2000 15 2010 … … … … 35 2210

• ------------------T-------------------

36 = CARD (TTP) 2220

Life-time profile of cohort (generation) born at time t Generations alive at time t Population growth

• ver time

Household inter-temporal problem

37

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

[ ]

∑ =

+ + + + + + + +

+

+ = + + + + + + + =

6 , , 7 6 , 6 , 3 2 , 2 , 2 1 , 1 , , ,

1

1 ) ( ) 1 ( ) ( ... ) 1 ( ) ( ) 1 ( ) ( 1 ) (

k j k g k t j j j g t j j g t j j g t j j g t j j

k

Con U U Con U Con U Con U Con U U ψ ψ ψ ψ ψ

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

38

C.D. Supp ly: Qj,t (at price PQj,t) Kdem j,t Ldem j,t LdemQ j,qual2,t

LdemQj,qual1,t

C.E.S. C.D. Supply: Qi,t (at price PQi,t) Kdem i,t Ldem i,t LdemQ i,qual2,t LdemQ i,qual1,t C.E.S. Ej,j,t Ei,j,t Composite Final Demand (at price PC j,t)

t j t j g g t j g t j

Gov Inv Con Pop

, , , , , ,

+ +

∑

Ej,i,t Ei,i,t Armington

Armington

Intratemporal problem of household and firms

Composite Final Demand at price PCi,t

39

Not funded pension plan PAYG Fully funded (100%) pension plan Our assumptions in this model Defined benefit, PensR exogenous CTR endogenous Defined contribution PensR endogenous, CTR exogenous Funding

Pension System -- Pay as You Go