Convergence of Regional Economic Cycles in Turkey

Abstract

TurkeyDissimilar economic fluctuations and asymmetric shocks across the regions of a country might create severe policy distortions that, under these circumstances, aggregate policy interventions (such as taxation and interest rates), are likely to be sub-optimal for at least a fraction of the regions. For instance, monetary policy can hardly satisfy the needs of all regions when some of the regions are experiencing a boom while others are in a recession phase. For these reasons, similarity of regional business cycles and their convergence are highly desirable from a policy viewpoint. The aim of this paper is, therefore, to provide empirical evidence and policy implications in that context. In particular, I analyze business cycle correlations across Turkish provinces and the tendency of these cycles to converge over the period of analysis between 1975-2000 and 2004-2008 (for Nomenclature of Territorial Units for Statistics [NUTS]-2 regions). I find that regional business cycle asymmetries have tended to decrease in recent decades. This result, although it seems to provide evidence in favor of rising correlations, shows that the convergence process is rather slow and there still exist asymmetries across the regional business cycles.

Dynamics of Regional New Firm Formation in Turkey

“…Although the analysis so far controls for the impact of various regional properties, it fails to assess an important factor that might have shaped the formation of the business environment in the last decade, which is simply the cyclical nature of the economy.The authors would like to thank the anonymous referee for bringing this to our attention. As discussed in Duran () provinces in Turkey may be subject to cycles that create high firm formation during expansionary periods and inevitably low firm formation during recessionary periods. To control for this business cycle effect, the so‐called Hodrick and Prescott (HP) filter is applied to the demand proxy used in the empirical analysis.…”

“…Equation 4 calculates the deviations of the actual observations from the long run trends.Y is the per capita tax revenue used as a proxy for local provincial demand (and income), λ captures the smoothness of the trend (τ). As reported in Hodrick and Prescott () and applied in Duran () λ is set equal to 100 for the use of annual data. The business cycle variable is also controlled for the presence of unit root with no sign of non‐stationarity problems.…”

“…For fixed effect specifications, regardless of the type of production, the business cycle variable positively and significantly influences new firm dispersion.There are other filters and methods that could be used to account for business cycles, however, in order to preserve the central aim of the research, they are not evaluated here. For details see Hodrick and Prescott (); Christiano and Fitzergald (2000); for discussions see Filiztekin () and Duran (). Additionally, other than provincial business cycles, an aggregate business cycle indicator could also be constructed as a weighted combination of the provinces, as in Duran ().…”

“…For details see Hodrick and Prescott (); Christiano and Fitzergald (2000); for discussions see Filiztekin () and Duran (). Additionally, other than provincial business cycles, an aggregate business cycle indicator could also be constructed as a weighted combination of the provinces, as in Duran (). However, as observing possible variations among provinces’ response to business cycles would be more informative, all analyses are carried out using the provincial business cycle indicator.…”

Spatial varying relationship between financial development and new firm formation: Evidence from a developing country

“…Even regional income gaps is highly studied, other dimensions of regional disparities are also starting to receive rising interest among development economists. Filiztekin (2009), Fatih Çelebioğlu and Sandy Dall'erba (2010), Adem Yavuz Elveren (2010), Hasan E. Duran (2013), Filiz Yeşilyurt and J. Paul Elhorst (2014), Ayşe Özden Birkan and Serpil Kahraman Akdoğdu (2016), Burhan Can Karahasan, Doğruel, and Doğruel (2016), all find that other socio-economic characteristics of regions are also suffering from inequalities.…”