Turkey’s trio of economic challenges
![Turkey’s trio of economic challenges](http://image.hurimg.com/i/hurriyet/75/0x0/59c90bd045d2a027e83cf8c8.jpg)
![Turkey’s trio of economic challenges](http://image.hurimg.com/i/hurriyet/75/0x0/.jpg)
In fact, exports usually respond more to income (of receiving countries) than prices (exchange rate). The impact of the latter may have fallen through time: A recent World Bank paper shows that between 2004 and 2012, currency depreciations were only half as effective in boosting exports as they had been between 1996 and 2003. A similar study by the Financial Times, using data from 2013 to the present, finds no effect of exchange rates on exports.
![Turkey’s trio of economic challenges](http://image.hurimg.com/i/hurriyet/75/0x0/59c90bd045d2a027e83cf8c8.jpg)
The authors of the World Bank paper attribute their result to the rise of global value chains (GVCs): “As countries are more integrated in global production processes, a currency depreciation only improves the competitiveness of a fraction of the value of final goods exports.” Turkey is not part of GVCs, but Turkish exporters import quite a bit of machinery and intermediate inputs. A weaker lira would make these goods more expensive.
![Turkey’s trio of economic challenges](http://image.hurimg.com/i/hurriyet/75/0x0/59c90bd045d2a027e83cf8ca.jpg)
Lower growth, persistent inflation and a stubborn trade deficit would be the worst combination for any country. Turkey is heading to elections amidst terrorism threats in this challenging economic landscape.