EUandFDI - Vienna University of Economics B.A Department of...

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Vienna University of Economics & B.A. Department of Economics Working Paper Series Speculation-led growth and fragility in Turkey: Does EU make a difference or “can it happen again”? Özlem Onaran* Working Paper No. 93 May 2006 Abstract The aim of this paper is to analyze the pattern of speculation-led growth in Turkey. It is dependent on international capital flows, whose continuity becomes more and more critical given the current account deficit, which is estimated to reach 6.1% as a ratio to GDP at the end of 2005. The paper assesses the sustainability of this speculation-led growth in the context of EU enlargement and compares the current state of fragility with former crises in Turkey as well as in East Asia and Latin America. Following a severe financial crisis in 2001, Turkey has entered a new phase of fragile growth led by boom-euphoric expectations. The paper aims at explaining this new phase and the evolution of the risk perceptions of both the creditors as well as the debtors in this “speculation game” based on the post-Keynesian/Minskyan concepts of endogenous expectations and financial fragility. Keywords: Financial fragility, Post-Keynesian, current account deficit, EU enlargement JEL-Code: E12, G15, G32, O52 Address of the author: Vienna University of Economics & B.A. Augasse 2 - 6, 1090 Vienna, Austria [email protected] http://www.wu-wien.ac.at/arbeitsmarkt/staff/onaran/ ______________________ * An earlier version of the paper was presented at the 9th Workshop of the Research Network ‘Alternative Macroeconomic Policies`, organized in cooperation with the Post-Keynesian Study Group (UK) and the Association pour le Development des Etudes Keynesiennes (France), October 28-29, 2005, Berlin. The author is grateful to the participants of the session, Engelbert Stockhammer and Barbara Schnieders for helpful comments.
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1 Speculation-led growth and fragility in Turkey: Does EU make a difference or “can it happen again”? 1. Introduction The aim of this paper is to analyze the pattern of speculation-led growth in Turkey. It is dependent on international capital flows, whose continuity becomes more and more critical given the current account deficit, which is estimated to reach 6.1% as a ratio to GDP at the end of 2005. The paper assesses the sustainability of this speculation-led growth in the context of EU enlargement and compares the current state of fragility with former crises in Turkey as well as in East Asia and Latin America. Following a severe financial crisis in 2001, Turkey has entered a new phase of fragile growth led by boom-euphoric expectations. The paper aims at explaining this new phase and the evolution of the risk perceptions of both the creditors as well as the debtors in this “speculation game” based on the post-Keynesian/Minskyan concepts of endogenous expectations and financial fragility.
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EUandFDI - Vienna University of Economics B.A Department of...

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