Ege University Working Papers in Economics 2015

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1 Ege University Working Papers in Economics IMPORT DEPENDENCY IN TURKEY: AN INPUT-OUTPUT ANALYSIS Osman Aydoğuş Çağaçan Değer Elif Tunalı Çalışkan Gülçin Gürel Günal Working Paper No: 15 / 02 May 2015 Department of Economics Ege University

2 IMPORT DEPENDENCY IN TURKEY: AN INPUT-OUTPUT ANALYSIS Osman Aydogus Department of Economics, Ege University, Izmir, Turkey Address: Ege Universitesi, Iktisadi ve Idari Bilimler Fakultesi, Bornova, Izmir, TURKEY Telephone: Fax: Cagacan Deger Department of Economics, Ege University, Izmir, Turkey Address: Ege Universitesi, Iktisadi ve Idari Bilimler Fakultesi, Bornova, Izmir, TURKEY Telephone: Fax: Elif Tunali Caliskan (Corresponding Author) Department of Economics, Ege University, Izmir, Turkey Address: Ege Universitesi, Iktisadi ve Idari Bilimler Fakultesi, Bornova, Izmir, TURKEY Telephone: Fax: Gulcin Gurel Gunal Department of Economics, Ege University, Izmir, Turkey Address: Ege Universitesi, Iktisadi ve Idari Bilimler Fakultesi, Bornova, Izmir, TURKEY Telephone: Fax: Abstract Import dependency is important for the development process. High import dependency implies, among many items, a vulnerability to foreign exchange shocks. This study examines the intermediate inputs import dependency of Turkish economy. Main contribution is the construction of an import matrix for year 2008, whereas the most recent official one is from year The analysis reveals dependency of Turkish economy on especially raw material inputs obtained from abroad. JEL Codes: input-output models, import dependency, Turkey Keywords: C67, F10, O50

3 Import Dependency in Turkey: An Input-Output Analysis Abstract Import dependency is important for the development process. High import dependency implies, among many items, a vulnerability to foreign exchange shocks. This study examines the intermediate inputs import dependency of Turkish economy. Main contribution is the construction of an import matrix for year 2008, whereas the most recent official one is from year The analysis reveals dependency of Turkish economy on especially raw material inputs obtained from abroad. JEL Codes: input-output models, import dependency, Turkey Keywords: C67, F10, O50 1 / 9

4 1. Introduction Input-output (IO) models are among the most used applicable models. Conducted studies focus on a very diverse set of research questions. Lin and Polenske (1995) examine sectoral energy usage. Zhang, Shi, Yang, Chapagain (2011) investigate international water trade and its impact on water usage in China. In light of the recent financial crisis, Leung and Secrieru (2012) examine how real and financial sectors interact. For the case of Turkey, conducted IO analyses focus on issues such as wage changes and sector prices (Konukman, 1996), price formation (Aydoğuş, 1999), effect of import prices (Berüment and Taşçı, 2002) and energy prices (Tunalı and Aydoğuş, 2007) on domestic prices and relationship between energy usage and carbon emissions (Tunç, Türüt-Aşık and Akbostancı, 2007). IO models are also used to examine import dependency of countries. Using IO modeling, Loschky and Ritter (2007) examine import content of exports for Germany. Cuihong and Jiansuo (2007) reveal the dependence of Chinese exports on imports of raw materials and intermediate inputs. IO models have been used to examine import dependency for the case of Turkey, as well. Günlük-Şenesen and Şenesen (2001) modify a standart IO model to isolate import dependency by origin sector and destination sector of flows, using Turkey 1990 data as a case study. Duman and Özgüzer (2012) use the 1998 and 2002 IO tables to conclude that not only manufacturing, but also trading sectors contribute to import dependency. Saygılı, Cihan, Yalçın and Brand (2012) use 1998 and 2002 IO tables, supplemented by firm surveys, to conclude that share of imported inputs in total inputs rose by 10% from 2002 to Ersungur, Ekinci and Takım (2011) use the 2002 IO table of Turkey to measure forward and backward import dependency linkages. The studies that utilize IO modeling to examine import dependency in Turkey are limited by the lack of recent IO tables. This study analyses import dependency through an IO model based on IO tables for year The contributions are twofold: Firstly, a 2008 import IO table is obtained through a non-survey approach. Secondly, import dependency is examined through this relatively recent table. The study progresses as follows: Next section presents the considered model and summarizes the results. Last section concludes. 2. Model, Data and Results The model is based on the goods market equilibrium condition: X = AX + C d + C m + I d + I m + G d + G m + E M (1) 2 / 9

5 where X A C d C m I d I m G d G m E M : output : matrix of IO coefficients : consumption demand for domestic goods : consumption demand for imported goods : investment demand for domestic goods : investment demand for imported goods : government demand for domestic goods : government demand for imported goods : exports : imports Intermediate inputs can be either domestically produced or imported. Hence, A = A d + A m where A d is [domestic coefficients] and A m are [import coefficients]. Also, by definition, M=A m + C m + I m + G m. Therefore Equation 1 can be solved as: X = [I A d ] -1 [C d + I d + G d + E] (2) Multiplying from the left by A m yields imported intermediate inputs as: A m X = A m [I A d ] -1 [C d + I d + G d + E] (3) From Equation 3, the import requirements can be isolated by: R = A m [I A d ] -1 (4) The matrix R includes the direct and indirect effects of increases in the final demand elements. Each element of matrix R, denoted r ij, shows the additional intermediate input import of sector i needed to meet the unit increase in final demand by sector j. Sums of the rows of R show how much intermediate input import by sector i increases if final demand in every sector j increases by 1 unit. [forward linkage] Sums of the columns of R show how much intermediate input import by every sector increases if final demand by sector i increases by 1 unit. [backward linkage] The analysis in this study relies on the forward and backward linkages implied by Equation 4. However, Equation 4 requires domestic and imported IO table for Turkey. Latest IO table for Turkey 3 / 9

6 are available for year The import matrix of year 2002 has been updated to year The choice of year 2008 is based on the availability of a national IO table of Turkey. As part of the development planning process, İZKA (İzmir Regional Development Agency) has funded the update of the national IO table of Turkey to 2008, which in turn has been the starting point for the preparation of a regional table for İzmir (Aydoğuş, Değer, Çalışkan and Günal, 2015). To maintain consistency with İZKA's 2008 national IO table, the 2002 import matrix has been aggregated to 36 sectors. To obtain an import matrix for year 2008, the non-survey method is adopted. In the framework of this study, the non-survey method is the most feasible method among alternatives. The non-survey method relies on constructing the table from a national table through various transformations, where transformations are based on adopted assumptions. Compared to a survey method, which requires extensive surveys to be conducted, the non-survey method has a considerable cost advantage. It is stated that the cost differential may reach a factor of 20 (Boster and Martin, 1972). The share of intermediate imports in total imports, from 2002 import matrix, is used to divide sectoral imports in the 2008 IO table to intermediate use imports and final use imports. This stage provides intermediate input imports for each of the 36 sectors. This is a column vector and needs to be divided into a matrix. In other words, aggregate intermediate inputs imports need to be distributed to sectors. To this end, the shares of intermediate imported inputs for each sector are obtained from the 2002 import matrix, then used on the 2008 sectoral imported intermediate inputs vector. This yields the import matrix for year The obtained import matrix and İZKA's 2008 national IO table have been used to perform the calculation implied by Equation 4. Implied forward and backward linkages are presented in the appendix, Table A1. Top ranking sectors in terms of forward and backward linkages are presented in Table 1. Table 1 shows that the highest forward linkages in Turkey are displayed by natural resource related sectors. If final demand in every sector increases by 1 unit, the intermediate input import requirement by mining and quarrying sector increases by 1.6 units. This is 1.3 for manufacture of chemicals and chemical products and 1.06 for manufacture of basic metals. 4 / 9

7 Table 1: Top 5 forward and backward linkage sectors Forward Rank Backward Rank Mining and quarrying Manufacture of coke, refined petroleum products and nuclear fuels Manufacture of chemicals, chemical products Manufacture of basic metals Recycling Manufacture of coke, refined petroleum products and nuclear fuels Source: Authors' calculations. Manufacture of basic metals Electrical energy, gas, steam and hot water Manufacture of pulp, paper and paper products Manufacture of chemicals, chemical products Backward linkages show the intermediate input import triggered by a unit increase in the final demand of a given sector. This is a better representation of dependency on intermediate input imports. For example, if the final demand in manufacture of coke, refined petroleum products and nuclear fuels increases by 1 unit, intermediate input import o 0.60 units are triggered. This figure is a representation of Turkey on imported unprocessed petroleum. Manufacture of basic metals sector triggers an intermediate input increase of 0.42 units. Electirical energy, gas, steam and hot water production has become very dependent on imported natural gas in the last decade and a half. Therefore, it is not surprising that this sector displays the third highest ranking in intermediate input import dependency, with Conclusion Conducted analysis shows that import dependency in Turkey is a matter of raw material imports, mostly fuels. The result is for year 2008 and differs from Duman and Özgüzer (2012), who argue that the growth in import dependency from 1998 to 2002 is due to the effect of not only manufacturing but also the trade sector. The difference in results is most likely due to sector aggregation. This study employs 36 sectors whereas Duman and Özgüzer (2012) use an aggregated 12 sector table from OECD. Günlük-Şenesen and Şenesen (2001) find that raw petroleum is an important factor for import dependency of Turkey in 1990, a result more in alignment with the current study. 5 / 9

8 The analysis is consistent with the fact that Turkey is poor in petroleum amd has to import a considerable quantity to meet the domestic demand. Unless a new source is located, there is little policy action in this regard. However, since domestic price of imports are heavily dependent on the exchange rate, policy action to avoid exchange rate fluctuations are recommended for price stability. 6 / 9

9 References Aydoğuş, Osman. (1999). Türkiye ekonomisinde maliyetler ve enflasyon: Ekonomik Yaklaşım. 10(34): Aydoğuş, O., Değer, Ç., Çalışkan, E.T. and Günal, G.G. (2015). An application of hybrid approach to constructing regional input-output tables: Case of İzmir, Turkey. İktisat, İşletme ve Finans. 30(348): Berüment, Hakan and Taşçı, Hakan. (2002). Inflationary effects of crude oil prices in Turkey. Physica A 316: Boster, R.C. and Martin, W.E. (1972). The value of primary versus secondary data in interindustry analysis: A study in the economics of economic models. Annals of Regional Science. 6(2): Cuihong, Y. and Jiansuo, P. (2007). Import dependency of foreign trade: A case of China. The 16 th International Conference on Input-Output Techniques. Istanbul, Turkey. 26 July, Duman, Alper and Özgüzer, Gül Ertan. (2012). An input-output analysis of rising imports in turkey. Ekonomik Yaklaşım. 23(84): Ersungur, Ş.M., Ekinci, E.D. and Takım, A. (2011). Türkiye ekonomisinde ithalata bağımlılıktaki değişme: Girdi-çıktı yaklaşımıyla bir uygulama. Atatürk Ü. İİBF Dergisi, 10. Ekonometri ve İstatistik Sempozyumu Özel Sayısı. Günlük-Şenesen, Gülay and Şenesen, Ümit. (2001). Reconsidering import dependency in Turkey: the breakdown of sectoral demands with respect to suppliers. Economic Systems Research. 13(4): Konukman, A. (1996). Türkiye ekonomisindeki ücret-fiyat ilişkileri, sektörel fiyat oluşumu ve enflasyon. Ekonomide Durum. 1(1): Leung, Danny and Secrieru, Oana (2012). Real-financial linkages in the Canadian economy: An inputoutput approach. Economic Systems Research 24(2): Lin, X. and Polenske, K.R. (1995). Input-output anatomy of China's energy use nchanges in the 1980s. Economic Systems Research 7: Loschky, A. and Ritter, L. (2007). Import content of exports. The 16 th International Conference on Input-Output Techniques. Istanbul, Turkey. 26 July, Saygılı, Ş., Cihan, C., Yalçın, C. and Brand, T.H. (2012). Türkiye imalat sanayiinde ithal girdi kullanımı. İktisat, İşletme ve Finans. 27(321):9-38. Tunalı, Elif and Aydoğuş, Osman. (2007). The effect of energy price increases on industrial prices and general price level: A comparative static analysis for selected EU countries and Turkey within the open static Leontief model. The 16 th International Input-Output Conference. Istanbul, Turkey. 2-6 July, Tunç, G.İ., Türüt-Aşık, S. and Akbostancı, E. (2007). CO2 emissions vs CO2 responsibility: An inputoutput approach for the Turkish economy. Energy Policy. 35(2): 855: / 9

10 Yalçın, C; Saygılı, Ş.; Cihan, C. ve Brand, T. H. (2012). Türkiye İmalat Sanayinde İthal Girdi Kullanımı. İktisat, İşletme ve Finans. 27(321): Zhang, Z.y., Shi, M.J, Yang, H. and Chapagain, A. (2011) An IO analysis of the trend in virtual water trade and the impact on water resources and uses in China. Economic Systems Research 23: / 9

11 Appendix: Table A1: Forward and backward linkages by sectors Sector Forward Rank Backward Rank Agriculture, Hunting and Forestery Collected and purified water, distribution services of water Construction Education services Electrical energy, gas, steam and hot water Financial Intermediation Fishing Health and social work services Hotels and restaurants Manufacture of Basic metals Manufacture of Chemicals, chemical products Manufacture of Coke, refined petroleum products and nuclear fuels Manufacture of Electrical machinery and apparatus n.e.c Manufacture of Fabricated metal products, except machinery and equipment Manufacture of food products and beverages Manufacture of Furniture; other manufactured goods n.e.c Manufacture of Machinery and equipment n.e.c Manufacture of Medical, precision and optical instruments, watches and clocks Manufacture of Motor vehicles, trailers and semi trailers Manufacture of Office machinery and computers Manufacture of Other non metallic mineral products Manufacture of Other transport equipment Manufacture of Printed matter and recorded media Manufacture of Pulp, paper and paper products Manufacture of Radio, television and communication equipment and apparatus Manufacture of Rubber and plastic products Manufacture of textiles and textile products Manufacture of tobacco products Manufacture of wearing apparel; dressing and dyeing of fur Manufacture of Wood and products of wood and cork (except furniture); articles of straw and plaiting materials Mining and Quarrying Other services Recycling Tanning and dressing of leather; manufacture of luggage, handbags, saddlery, harness and footwear Transport, storage and communication Wholesale and retail trade Source: Authors' calculations. 9 / 9

12 Sheet İTHALAT IOT Tarım, Avcılık ve Ormancılık Balıkçılık, balık üretme ve yetiştirme çiftliklerinin işletilmesi ve balıkçılıkla ilgili hizmetler Madencilik, Petrol ve Doğalgaz Çıkarımı Gıda ürünleri ve içecek imalatı Tütün ürünleri imalatı Tekstil ürünleri imalatı Giyim eşyası imalatı; kürkün işlenmesi ve boyanması Derinin tabaklanması, işlenmesi; bavul, el çantası, saraçlık, koşum takımı ve ayakkabı imalatı Ağaç ve mantar ürünleri imalatı (mobilya hariç); hasır ve buna benzer, örülerek yapılan maddelerin imalatı Kağıt ve kağıt ürünleri imalatı Basım ve yayım; plak, kaset v.b. kayıtlı medyanın çoğaltılması Kok kömürü, rafine edilmiş petrol ürünleri ve nükleer yakıt imalatı Kimyasal madde ve ürünlerin imalatı Plastik ve kauçuk ürünleri imalatı Metalik olmayan diğer mineral ürünlerin imalatı Ana metal sanayii Makine ve teçhizatı hariç; metal eşya sanayii B.y.s. makine ve teçhizat imalatı Büro, muhasebe ve bilgi işlem makineleri imalatı Tarım, Avcılık ve Ormancılık Balıkçılık, balık üretme ve yetiştirme çiftlik Madencilik, Petrol ve Doğalgaz Çıkarımı Gıda ürünleri ve içecek imalatı Tütün ürünleri imalatı Tekstil ürünleri imalatı Giyim eşyası imalatı; kürkün işlenmesi ve Derinin tabaklanması, işlenmesi; bavul, el Ağaç ve mantar ürünleri imalatı (mobilya Kağıt ve kağıt ürünleri imalatı Basım ve yayım; plak, kaset v.b. kayıtlı me Kok kömürü, rafine edilmiş petrol ürünler Kimyasal madde ve ürünlerin imalatı Plastik ve kauçuk ürünleri imalatı Metalik olmayan diğer mineral ürünlerin i Ana metal sanayii Makine ve teçhizatı hariç; metal eşya sana B.y.s. makine ve teçhizat imalatı Büro, muhasebe ve bilgi işlem makineleri B.y.s. elektrikli makine ve cihazların imala Radyo, televizyon, haberleşme teçhizatı v Tıbbi aletler; hassas ve optik aletler ile saa Motorlu kara taşıtı, römork ve yarı römo Diğer ulaşım araçlarının imalatı Mobilya ımalatı; b.y.s. diğer imalat Yeniden değerlendirme Elektrik, gaz, buhar ve sıcak su üretimi ve Suyun toplanması, arıtılması ve dağıtılmas 29 İnşaat 30 Toptan ve Perakende Ticaret Oteller ve lokantalar Kara, Su, Hava ve Boru Hattı Taşımacılığı v 33 Sigorta ve Emeklilik Fonları Dahil Mali Hiz Eğitim hizmetleri 35 Sağlık işleri ve sosyal hizmetler 36 Diğer Hizmetler Toplam B.y.s. elektrikli makine ve cihazların imalatı Radyo, televizyon, haberleşme teçhizatı ve cihazları imalatı Tıbbi aletler; hassas ve optik aletler ile saat imalatı Motorlu kara taşıtı, römork ve yarırömork imalatı Diğer ulaşım araçlarının imalatı Mobilya ımalatı; b.y.s. diğer imalat Yeniden değerlendirme Elektrik, gaz, buhar ve sıcak su üretimi ve dağıtımı Suyun toplanması, arıtılması ve dağıtılması İnşaat Toptan ve Perakende Ticaret Oteller ve lokantalar Kara, Su, Hava ve Boru Hattı Taşımacılığı ve İletişim Sigorta ve Emeklilik Fonları Dahil Mali Hizmetler Eğitim hizmetleri Sağlık işleri ve sosyal hizmetler Diğer Hizmetler Toplam İthalatın Nihai Kullanıma giden kısmı Toplam İthalat (2008 tablosundan) Page 1