Trends in the Terms of Trade of Developing
Countries and Turkey
Yrd. Doç. Dr. Tomris YILMAZ('~) Marmara Üniversitesi İktisadi ve İdari Bilimler Fakültesi
1. INTRODUCTION
in the mid-'60s, the concept of the İnternational dİvİsİon of labor gained increasing attentİon in the development debate. The main reason for taking up this concept was given by the notorious foreign exchange problems most developi_ng countries were faced with the three sources of foreign exchange - (traditional) exports, direct in-vestment and assistance - seemed unable to contribute to a solution of the problem. Eaming from exports, the bulk of which were primary commodities, which were subject to strong fluctuations; neither price trends nor demand seemed to offer satisfactory long term pro-spects (1).
This event is often emphasized in the international repQrts. While trade was also seen 'an engine of growth', t.he traditional pattern of trade was such that the primary products exported by the developing countries (South) fac.ed
a
secular deterioration in their prices in relation to the predominantly manufactured imports from the developed countries (North). in order to benefit fully from the gains from trade, the South would have to actively enter the world market through the export of manufactured goods (2).
(*) İ:ktisadi Gelişme ve UIUslararası İktisat Ana Bilim Dalı.
(1) Rene Godoni, The lnternational Dlvlslon of Labor in View of the Second Decade, Zurich, 1974, s. 2. '
(2) UNIDO lndustry 2000, lndustrialization Strategies and Contry -·case Study,
Volume: 6, Vienna, 1980, s. 8.
As seen, the concept of prinıary goods or commodities is often mentioned. in these reports. in that case, primary goods have to be defineci in priority.
Primary goods are the products of farming, forestry, fishery, . hunting; and al$O mineral products V\lhich are les·s cOntributed to the value of material by process. lndustrial, that is, processed or final goods are the manufactured products of consumption or capital goods (3
).
As above mentioned, the prices of primary goods have tended to decrease in the recent years again. We. can see this tendency on the following table. This table includes indices for the total of primary commodities, food, tropical beverages, vegetable oilseeds and oils, agricultural raw materials and orels and metals. Selected annual indices of free market prices of individual commodities of export interest to developing countries are shown. For reference, market prices in dollars are shown for the .base year.
(3) United Naions, Proceedings of. the UNCTA~ Second Session on Probleme and Policies of Trade in Manufactures and Semi-Manufacture·s, New York, 1968, s. 37.
80
Table. 1 : ANNUAL PRICES OF FREE MARKET PRICES OF SELECTED PRIMARV COMMODITIES (1980
=
100, $) 1960 1970 1972 1973 1974 1975 1976 1977 1978 1979 1981 1982 1983 1984 1985* TOTAL 26.5 33.5 34.8 53.7 72.2 58.4 66.0 83.1 76.7 88.1 . 84.4 71.8 75.4 76.5 69.9 Food and Tropical Beveroges 23.8 29.3 33.3 49.5 \. 69.7 58.1 68.4 95.6 78.6 84.6 81.3 67.6 71.0 71.8. 66.4 Vegetalble Oils • ond Oilseeds 38.3 46.1 40.6 75.5 123.2 76.1 71.9 92.2 101.4 116.8 95.7 75.4 91.9 124.0 101.4 Agriculture Row Materials,Orel·s and Metols 28.2 29.3 33.7 56.8 61.2 50.7' 61.9 65.5 72.6 89.2 87.2 75.9 81.1 78.9 70.5 ~ Crude Petmleum 5.2 4.5 6.6 9.4 34.0 37.4 40.1 43.3 44.3 60.2 113.4 116.8 102.2 99.3 97.7
(*l three monthly
Food and Tropical Beverages
Food: Wheat, Maize, Rice, Sugar, Bee.f, Bana nas, Pepper, Fish meal, Soybean Meal; Tropicaı Beverages: Coffee, Cacao, Tea. Vegetable Oils and Oilseeds: .Soybeans, Soybean Oil, Sunnower Oil, GroundnÜts, Groundnut Oil, Copra, Coconut Oil, Palm
Kernels, Palm ·Kemel Oil, Palm Oil, Linseed Oil, Olive O'il.
Agriculture Raw Materials: Coıuon, Wool, Sisal, Jute, Rubber, Hides and Skins, Tropical Timber. Ores and Metols: Manganase, Phosphate· rock, lron Ore, Alumi nium, Copper, Lead, Z.inc. Tin, Tungsten.
Source: United Nations, Handbook of lnternational Trade and Development Statistics, 1985 Supplement, New York, 1985, p. ~ 46-48.
Trends in the prices of primary comnıodities. are .especially im-portant for the developing countries. Because, as above mentioned, when we look at the structure of exports of developing countries, it is seen that they are the exporters of primary commodities and the importers of manufactured goods. So the negative effec.ts of decreasing prices of these goods on the export earning~ of developing countries can be easily realized.
Table. 2: EXPORT STRUCTURE BY MAJOR COMMODITY GROUPS Share by mojor commodity groups (in percent)
Developed Ma.rket' Commodity Groups Year
Ati food items 1970 (SITC O
+
1+
22+
4) 1975 1982 Agricultural Raw Materials (SITC 2+
22 + 27 + 28) 1970 Ores and Metals1975 1982 (SITC 27 + 28 + 67 + 68) 1970 Fuels (SITC 3) Manifactured Goods (SITC 5 to less (67
+
68) 1975 1982 1970 1975 1982 1970 1975 1982 Economy Countries 12.1 12.6 11.4 4.7 3.6 3.2 12.5 10.9 8.3 3.4 5.1 8.2 65.7 66.2 67.3Source : United Nations, ibid., s. 72 -73.
Developing Countries 26.5 15.8 12.4 10.0 4.0 3.0 13.6 5.9 4.8 33..4 59.5 57.0 16.3 14.4 21.9
According to the same source; Developed Market Economles: Australia, Aust-rta, Bel·gium, Conada, benmark, Faeroe lsland, Finland, France, Germany (Federal Republic of) Gibraltar, Greece, lceland, lreland, lsrael, ltaty, Japon, L;uxemburg, Netherland, New Zealand, Norway, Portugal, South Afrioo, Spain, Sweden, Switzer-land, -tJnited Kingdom of Greot 'Brita'i'n and North~.rn lrela·nd, United States and Vugoslavia. Developlng Countries : All other countries and territories in Africa, Ame-rica, Asia, Europe and Ocenia. These classification distinguish, in 1the füst instance, between the· major petroleum expor.ting countries and other developing countrles and territories. The later ere in tum subdivided -into three categories, namely, major expor.ters of man'ifacture•s, least deve·loped countries and a residual category, rema·in·ing countries '. (Major exporters of manufactures : Argentina·, Brezil, Hong
il. THE VALIDITY of PREBISCH .THESlS tor DEVELOPING COUNTRIES
The fact that the prices of primary commodities tend to decline as historical, and so the deteorited terms of trade of developing co-untries - these commodities predominates in their exports - has led to be done many studies in this subject (4
).
One of the most interesting occurence in this field, is that Pre-bisch thesis has again brouht the agenda today, the important points of this thesis are summed up like this. (5).
The trend of forei·gn disequilibrum existing in the developing countries is entirely the result of increase· proportion in the·ir exports of primary goods in comparision with the imports of industrial or manufactured goods. L~ss increase in the export of primary goods is the evitable result of .technological .progress in the developed countries. This result oc.curs from the fact that this progress leads to the substitution of synthetic goods with natura! goods. On the .
other hand, when it is compared with the demand tor industrial goods and services, less share of inc.reases per capita inceme resulted from technological progrnss tends to the food and other basic consumption goods. So, the ·inceme and price elasUcities demand for primary goods are low. in addition to this, one of the features of primary goods is that demand is more important than supply in the price determination.
Kıong, Republic of Korea, Singapore, Taiwan, Province of China,. Turke·y is a
remaining oountry). in addition, all developing countries ·have been classified
ac-cording to their per capıita GDP in 1980. (Turkey is among t'he co.untries whose per
capita is $ 500- 1500).
lbid p. iii.
(4 ) Tomris Yılmaz, The Relationship Between the Balance of Payments and
the Terms of Trade in Developing Countries, Publishe·d Thesis, Marmara University,
Publish No : 425, lstanbul, 1985:
(5 ) Raul Prebisch, Towa,rds to a New Trade Policy for Economic Development,
Translato.r: Erden Öney, Sevine Pub., Ankara, 1973, p. 13.; The Economic
Develop-ment of Latin America and its Principal Problems, New Yıork : ECLA UN Department
of Economic Affairs, 1960.
Tabla. 3: SUPPLY and DEMAND ELASTICITV FOR SELECTED PRIMARY GOODS OF DEVELOPING COUNTRIES
Demand Elasticity Supply Ela.sticity
Commodity Group Short-Run Long - Run · Short-Run Long - Run
Ooffee -.3 .4
.o
.3 Oocao -.1 1.4.o
.3 Tea -.1 .4 .1 .2 Sugar -.1 .8 .O .2 Ootton :;;_,2 .5 .1 .1 'Wheat -.5..o
.o
.6 Rice.o
.o
.o
.o Wool -.2 1.1.o
.5Source: Richard Behrman, «lnternati'onal Commodity Agreements»,
lntern.ati-onal Econom.ic Perspecti~~s (Pontfolio), Volume: 5, Number: 4, p. 55.
Because of the prices of ·many primary goods are· determined competitively in relatively free markets, they fail during cyclical down-turns by more than they rise during the cyclical updown-turns. Supply of them cannot be restricted during cyc.lical upturns and so the prices of these goods increase. For the same reasons, their prices decrease during cyclical downturns. But, as Prebisch suggested that price and income elasticities of demand for these goods are low and consequently increasing trend is less than decreasing trend.
As a result, one of the reasons for the ·secular tendency of the net barter terms of trade hich moves against primary goods (and naturaly countries produc.ing prin;ıary commodities) might be special mechanism whereby the prices of primary commodities relative. to manufactured goods fail during cyclical downturns by more than they rise during the cyclical uptums. This might be expected a! priori given that the prices of many. primary commodities are determined in perfect markets, whereas the prices of manufactured comrnodities are determined in monopoly and oligopolistic market. As known, in these markets, the c.osts tend to be sticky downwards. in other words, the cost decreases in the production of primary goods are transmitted to the prices of them in the market of perfect compe-tition. On the contrary, increases in the productivity of industrial goods fmm the developed countries are not reflected to the prices of these goods, but added to the income·s of ·factors. ·
Therefore, it is a historical tendency that net barter and income terms of trade which show the capacity of import, are deteoriated or unfavourable. The validity of Prebisch's main thesis, and that of Singer (1950) artic.ulated at the same time, concerning the long-run deteoriation in the terms of trade tor primary commodities has come under close sorunity from Sproas (1980) (6
).
The one of the recent studies has accepted the same result of this thesis (7). in this study, United States Statistics have been
used tor the classafication of the commodity, country and prices like us.
in this study, Prebisch this is analyzed for two periods: One is about 1954 - 72' and the other is about 1973 -8~.
As we will see on the forllowing table, in the period 19"54 - 72, the indexes clearly indicate an overall deterioration in the terms of trade of primary commodities over thi's period taken as a whole. As far as the prices of· individiual commodity groups are concerned, only non - ferrous base metals and copper showed a trend improve-ment in excess of increase in manufactured goods' prices, but in neither case was the terms of trade improvement statistically signi-ficant. · For all commodity groups and individual commodities, the terms of trade were either trendless of deteriorated. ·
The period 1973 - 82 presents a somewhat different picture. Ex-ception of minerals which includes crude petroleum, for all other commodity groups, the rate of price increase was lower than that for manufactured goods, and the terms of trade for these products was either trendless or deterioriated.
As a result, this has confirmed the mest important conc.lusion of Prebisch thesis for ali the periods.
The overall conclusion must be, t~erefore, that, excluding pet-roleum, there· has been a more or less. continious deterioration in the
(6) H. Singer, «The dis·tribution of gains between investing and borrowing
oountries», America,n Economlc Review Papers and Proceeding, May 1950; J.
Sproas, «The statistical debate -on the net ·berter terms of trade between primary
oommodities and manufaotures», Economic Journal, March 1980.
(7) A. P. Thirwall and J. Bergevin, «Trends, Cycies and Asymmetries in the
Terms of Trade of Primary Commodities. from Developed and Less Developed
Countries», World Development, Volume·: 13, Number: 7, J·uly 19'85, p·. 805-815.
terms of trade of primary commodities over the period 1954 to 1982 continuing the long - term historicai deteoritation 'indicated by Pre-bisch and Singer and confirmed by Sproas. Changing dates and bases does not alter this general long - run conclusion (ş).
Table. 4 : TiME TREND$ iN THE PRICES OF PRIMARY COMMODITIES
-MANUFACTURES AND THE TERMS OF TRADE, 1954 - 72 and 1973 - 82
Commodity
Quarterly time trend
Manufactures + 0.0052*
All primary commodities + 0.0027
Food (F) + 0.0028 Agricultural Non-Food Products (ANFP) Minerals (M) Non-Ferrous Base Metals (NFBM) Fuels Crude Petroleum Copper Natura! Rubber Beverage Crops Ootton Rice Wheat + 0.0010 + 0.0047* + 0.0064* + 0.0044* + 0.0038 + 0.0074* - 0.0021 - 0.0037 - 0.0025 - 0.0010 + 0.0005 1954-72
Direct estimate Quarterly
of quarterly time
trend in the trend
terms of trade - 0.0029* - 0.0025 - 0.0047 - 0.0011 .+ 0.0015 - 0.0014 - 0.0021 + 0.0025 - 0.0074* - 0.0088* - 0.0041:1; - 0.0039* - 0.0041* + 0.021 + 0.039* + 0.013* .+ 0.013* + 0.059* + 0.015* + 0.061* + 0.064* + 0.003 + 0.014 + 0.020 + 0.015~' + 0.005 + 0.009 1973-82 Direct estimate of quarterly trend in the terms ,of trade
+
0.017* - 0.008* - 0.008* + 0.037* - 0.006 + 0.039 + 0.041* - 0.018 - 0.005 - 0.004 - 0.006 - 0.017* - 0.013(*) lndicates that the trend estimate is significantly different from zero at
the 95 % oonfidence level.
Note : Time· trends in the terms of trade for primary products directly by taking
the ratio of primary 'product prices 1to manufactured price·s as the dependent
variable.
Source: lbid, p. 807.
CX>
...
Region and Economic
foble. 5 : TERMS OF TRADE tNDICES
(1980 = 100, $) Groubing 1960 61 62 63 64 65 66 67 68 · 69 70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 Developed Market Eoonomy Oountries 117 117 122 117 121 120 120 120 120 119 122 123 123 122 108 109109 106 108 107 100 98 100 101 100 Developing Oountries and , Territories 51 49 48 48 46 44 45 41 42 42 42 43 42 45 80 79 79 80 75 83 106 100 103 99 99
Source: Un'ited.Nations, Handbook of ... , p. 44.
:E
et> o o ::::s o '(jjo
"'
et> et> ... ::l" a;· """Im
ı::::: ;::::; ::::s...
::l" CD-
2.~
5· fC...
o O'" - ~The deteriorated trend in the terms of trade for primary goods causes the disequilibrum of balance of payments and consequently the shortage of foreign exchange. lndeed, the correlation between the trend in the terms of trade and the disequilibrum of balance of
payments is strong in developing countries (10
).
in the developing countries excluding oil - exporters, the changes
in these two .factors can be seen in that table.
Table. 6 : THE CHANGES iN THE TERMS OF TRADE AND CURRENT ACCOUNT iN
THE DEVEL01Pl.NG COUNTRIES
Current -Account The Change of Terms of Trode (%, $) 1967-72 1973 1974 1975 1976 1977 1978 1979 1980 1981 -17.2 -10.6 -24.8 -30.9 -18.1 -12.9 -15.2 -17.7 -20.4 -22.4 - 0.4 6.7 - 5.1 -10.0 5.6 6.9 - 5.4 0.8 - 6.4 - 8.1
Source : Moıhsin S. Khon and Malcolm Knight. «Sources of Pavments Problems in
LDC'·s», Finance a·nd Development, 1983, s. 2.
As we have seen in the above table, there is o close relationship between the deficit of current - account and the deterioration of the terms of trade. in other words, the deficit of current account has increased in the years which the terms of trade has been un-favourable.
(1°) Yılmaz, The Relationship Between ... , s. 122.
111. THE VALIDITV of PREBISCH THESIS for TURKEV
in that case, what is the solution tor this problem? To solve this problem, developing c.ountries have to increase the share of in-dustrial products in their total exports. in order to become the ex-porters of man~factured products, the developing countries have to ma'ke their structural changes. The heart of any structural change in the global economy characterised asa New lnternational Economic Order, must be a major shift from agriculture to industry in the devel-oping countries as reflected share of global industrial capacity.
We must not be pessimistic in this field. Because, Turkey has been considered as a country vyithin structural change together with Spain, Portugal and Greece in the recent international articles (11
).
The economic growth in South European Countries had been very slow in the halt - term of this century. As annual average growth rate of these countries had been 2 - 3 % which was the traditional rate, this rate increased 6.3 % in the period 1960 -19'73.. This progress has decreased in 19:74 - 76 in connection with the political conditions and international change_s. Turkey has followed the strategy towards industry to provide structural change and this change has illustra-ted the structure of export. Although the leading sector is textiles branch, the industry in Turkey has rather varied and basea upon several branch. The most large of industry export consists ·of ma-terials which are not processed before. in other words, the export of Turkey which depends on natura! endowments takes place in the total exports (12
):
lndeed, the change in the export structure of Turkey can easily be seen in the following table. lf we' look at the changes of export
(11) See for the UnHed Nations' classification for four countries; Table 2
foodnote.
in additicin to this, the principal country ·groups used ·in the 'World Bank's Re-port are defined as follows: Oeveloping Countries are divided ·into: Low-income economies, with 1982 gross natio·nal produot (GNP) per person of less than. $ 410; and middle-income economie·s, with 1982 GNP per person of$ 410 ar more. Greece, Portugal and Turkey are considered among the middle - inceme economies. But Turkey is 64 ıth country among lower-middle income economies. Portugal and Greece are among upper-middle income economies. Spain is among industrial market economies as in the classification of United Nations (World Development Report, Oxford University Press, 1984, p. i:x, 194-195).
(12) ·Bela Kador, Structural Changes in the World Economy, Landon, 1984, p.
115-119.
as the groups of material, we can see that the most developed sector has been industrial sector.
Table. 7: THE CHANGES OF EXPORT AS THE MATERIAL GROUP (FOB, billion· $)
(1973: 100) A. Primarv 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 Products 1. Agricultural and Animal Breooing 102 95 151 125 186 162 201 257 257 226 2. Mining and Quarry 157 188 196· 223 221 236 . 341 346 313 338 B. lndustrial Products 138 117 139 13q 145 183 244 534 800 853 C. TOTAL 116 106 149 133. 174 173 221 357 436 435
Source : State lnstitute of Statistics. S~atistlcal Pocket Book of Turkey, 1978. p.
193; 1984, p. 213 (Calculations are made by us).
As seen above, the exports of primary products has developed 200 % . On the contrary, the exports of industrial products has incre..: ased 800 % . So this rapid progre.ss has led to increase percentage share of industrial. product in total export.
Table .. 8: STRUCTURE OF MERCHANDISE EXPORTS iN TURKEY (FOB, blllion $)
A. Prlmary 1973 1Ş.74 1975 1976 1977 1978 1979 198() 1981 1982 1983 1984 Products 1. Agricultural and Animal Breeding 63 55 57 64 60 67 56 57 47 37 33 24 2. Mining and Quarry 4 6 7 6 7 6 6 7 4 3 3 3 B. lndustrial Products 3~ 39 36 30 33 27 38 36 49 60 64 73 C. TOTAL 100 100 100 100 100 100 100 100 100 100 100 100
Source: State Institute of Statistics Annua·I Foreing Trade Statistics, 1S78, 1983;
The Bulletein of Monthly Statistics, 1985.
According to the datas in these tables; if we want to calculate the export share of primary products 'in a realistic point of view, we have to add the percentage of 12 % of agricultural base processed products and the percentage of 6 .% processed petroleum products, that is, total percentage of 18 %. So, the share of agricultural and base ·processed products plus mineral products in total export. is approximately 42 % . The share of real industry is 55 % . Whereas this share is about 70 % as above shown (13
lndeed, when we loo'k at the statistics of United Nations, we can see the percentage calculated by us.
Table. 9: BY MAiN CATEGORIES OF EXPORT iN TURKEV
Years Ali food Agricultural Fuels Ores Total Chemical Other Machiner
items raw and products manu- and
materials Metal factu- equipment
red goods 1970 49.28 33.58 0.62 8.10 8.41 1.60 6.43 0.38 1975 45.45 20.31 2.57 9.26 22.40 2.26 18.75 1.38 1980 51.07 13.59 1.43 7.98 25.98 2.63 20.43 2.87 1981 46.00 9.98 2.'28 6.14 35.60 2.12 29.04 4.44 1982 39.27 8.02 6 .. 00 9.07 37.63 2.81 29.57 5.24 1983 38.26 6.56 4.11 10.75 40.32 2.66 33.01 4.65
Source: United Nations. ibid ... , s. 157
Consequently, the exports of primary products continue to in fluence on our export eamings. Although the structural change in our export is clearly seen that, because of the reasons that the prices of our primary products decrease and the prices of our import pro-ducts increase, our terms of trade are deteoriated. This reality shows us that primary products have an important role to effect ·the gains which ore provided from export.
Tabla. 10: THE NET BARTER TERMS OF TRADE OF TURKEY ('$) Years 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1968 : 100 99.1 96.8 97.6 103.8 106.4 84.6 76.0 81.6 76.9 72.9 72.6 54.7 50.49 50.23 53.12 58.0 1973: 100 100 92 77.7 79.8 79.4 73.8 73.7 56.9' 52.1 49.7 49.0 55.3
Source: State lnstitute of Statistics, The Bulletein of Monthly Statistics, 1977 (X-XI), 1984 (IX-X), 1985 (Vlll).
As shown in the table, whichever we take as base year ·(1968 or 1973), the net barter of trade in dollars have being deteoritated for Turkey. The trend in Turkish l·iras is about the same. The reason of this; the increase rate of price of our export foods is further from that of our import goods. As it is known that this is the spurce transferin9 from Turkey to aıbroad. it we had provided the· nece1ssary inc.rease in the quantity of export to compensate with the decrease of prices, this unfavourable trend would reverse.
But, as it is seen in the quantitiy index of export and import, the unfavourable change is observed in this field, too.
Table. 11 : THE INCOME TERMS OF TRADE OR THE CAPACITV OF IMPORT OF TURKEV (1968: 100, $)
The quantitiy of The quantitiy of The income terms Vears eMports imports of trade
1976 138.8 236.0 113.26 1977 107.4 238.4 82.59 1978 129.,3 165.3 94.26 1979 100.8 149.7 73.18 1980 106.7 154.5 58.36 1981 150.2 173.3 75.84 1982 159.1 174.4 79.92 1983 147.0 213.5 78.09 1984 146.9 271.0 85.18
Source : lbıd (inceme terms of trade have been calculate·d by us}.
it is seen in the table that the quantitiy of ·imports has increased 113.5 % as that of exports has been 47 % since 1968. Naturally,.the inceme terms of trade showing the capacity of import has · deteorita-ted. The main reason of this is that the price and income elasticities of main export products of Turkey are rather low. This case can be seen in that table too.
Table. 12: THE PRICE AND INCOME ELASTICITV OF TURKEV'S MAJOR PRIMARV PRODUCTS
Products Price El~sticity lncome Elasticity
Wheat* -0.337
o
Gorn -0.3
o
Rice-Oa·ts-Maize -0.2
o
Raisins* -0.2 0.38
Sunflower -0.302 0.6 'Beet Sugar -0.303 0.6 Tea -0.5 0.5 Tabacco* -0.3 0.5 Cotton* -0.3 0.6 Pul ses -0.31 0.1 Grape '--0.13 0.6 OHs -0.305 0.65 · Vegetables -0.189 0.75 Bitterns -0.19ı71 0.50 Hazelnuts* --0.4 0.80 Fruits -0.14 0.45 Cattle - 0.605 1.75 Cow milk -0.5 1.20 Sheep muuon -0.2 0.95 Sheep milk -0.3
source: World Bank, Turkey lndustria.fization and Trade Strategy, Muin Report, Volume: 2, Feıbruary 1982, p. 30.
N:ote : A:sterisık shows the pmducts tıhat play the most important role in Turkey's agricultural exports.
Generally, the price and income elasticities tor our export pro-ducts are below unity. The other reason which leads to decrease export earnings is the policy of foreign exchange rate applied in the recent years.
Turkey has a dual economy. in other words, it is a reality that
there is the · cost differences in the industry, agriculture and service
sectors. Also there is a large cost differences in the each of these activities. Because of this. in order to increase our export, the ne-cessity of being varied of the effective export rate (14) caused on the commodity bases. in Turkey, these differentiations were implied for
many years. For example, Turkish liras was overvalued for tradi-.
tional agricultural products (cotton, tobac.co, hazelnut, rice·). The
reason of this was that the demand elasticity of these· products was
not elastic. in other words, the increase of foreign exchange earnings
was not expected by keeping the low price of these -products in
foreign markets in the terms of foreign currency. This was an ·
im-portant precaution (14
).
( 14) Gülten Kazgan·, «New Foreign Exchange Polioy», Money - Credit, Number: 6, June 1982, p. 11.
Effective export rate consist of premium, (% 4). repayment of ·tax (% 55), the di·scount O·f interest (are not applied any more). exception·s of seme taxes, to give
the right of holding of a part of export earnings to tıhe e:xporters. abroad (% 20) and the allo·cati·on 1o·f a par:t ·of expo·
rters' earn'i'ngs tor :using in their importers (:% 50). 93
Now, as showed the relationship between current - account
çje-ficit and the deteoriation of terms of trade of developİng countrİes,
we
can
show thİs correlation for Turkey. This relationshİp İS veryhard for Turkey too. in other words, the fact that the terms 'of trade
have being deteoriated leads to increase the deficit of current
ac-count.
Table.14: CURRENT-ACCOUNT BALANCE OF PAYMENTS (billion $)
Years Cummt - Account Deficit Merchandise Trade Defic.it
-1972 15 ---, 678. 1973 515 - 76·9 1974 - 780 -2246 1975 -1892 -3338 1976 :._2295 ----3168 1977 -3572 --4043 1978 -1710 -23.11 1979 -1771 -2808 1980 -3196 --4999 1981 -2052 --4230 1982 -1166 -3097 1983 -2234 -3507 1984 -1731 -3041
Source: State lnstitute ·of Statistics, The Bulletein of Monthly Statistics 1977 (X-XI),
1984 (IX-X). 1985 (Vlll).
lf we calculate, taking into the account of datas in the Table. 6
and this table, we can see that the coefficient of correlatİon İS very
high. This coefficİent İS (-0.84) according to the calculation made
by us.
Sum up, Prebisch thesis is valid for Turkey too. Because of this,
Turkey has to immediately escape from the exporters of prİmary
products, that is, she has to complete the · procedure of structral
changes.
Although the structural change in export of Greece, Portugal
and Spain and Turkey do not affect the general tendency in inter
-national trade and the distribution of labor, 'it is important that the
quantitiy of industrial exports from these countries increased billion
the evidence o~ integration between South and North Europe plays
important role (15
).
lndeed, the procedure of integration between Turkey and Euro-pean Economic Communitiy {EEC) brings about the necessity of
structural change of Turkey {16
).
iV. CONCLUSl'ON
As a result, we can say that developing countries are stil! the
exporters of primary good~ and the importers of manufactured goods.
Fer · the features and market structures of . these goods are
different from other ·goods, the prices of primary goods are
dec-reasing whereas those of manufactured goods are increasiıig.
Go11-sequently, the net barter terms of trade move against primary goods. ·
in other words, there has been secular deterioriation as Prebisch suggested many years ago. This situation has caused the
disequilib-rurn of the· balanc~ of payments or the shortage of forei·gn exchange
in the deve·loping countries. Because the· correlation between the
net barter terms of trade and the deficit of current - account is very hi·gh.
The same reasons and results can be mentioned tor Turkey, because Turkey is among the developing countries according to the country classification.
in that case, in order to escape from negative effe.cts. resulted
from the features of primary goods, developing countries and Turkey
have to realize structural changes, which will .transform agricultural
structure to the industrial structure. This change is also necessary tor either internal and extemal integration of these countries.
(15) Kader, ibid., p. 1 rn.
(16) See; Tomris Yılmaz, The Economic lntegration in Theory and Practice, Can
Printing, lstanbul, 1985.
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