TRADE REFORM, DEINDUSTRIALIZATION AND LABOUR DEMAND: AN INPUT-OUTPUT STUDY FOR TURKEY (1973-1990)

Öner GÜNÇAVDI (Istanbul Technical University )
Suat KÜÇÜKÇİFÇİ (Istanbul Technical University)

In the inhospitable international setting of the pre-1980 period, Turkey pursued an inward-oriented industrialisation strategy, which was supported by a high degree of protectionism. However, this period was followed by a balance of payment crises in 1979, which arose basically from the low level of exports and heavy dependence on imported capital goods and raw materials. In order to deal with the crisis, Turkey launched a far-reaching stabilisation and structural adjustment programme in the early 1980. Due to the dependence of domestic production on imported inputs and the shortage of foreign exchange, Turkey attributed particular importance to trade reform.

The effects of stabilisation and structural adjustment on employment have been examined by various studies, and have showed how the outcome will vary from case to case. The aim of economic measures brought about by stabilisation and structural adjustment is to increase the production of tradable goods in the economy while reducing their consumption, so bringing about external balance and macroeconomic stability without major adverse effects on non-tradable sector. These measures include both those, which are likely to have an adverse employment impact (such as fiscal contraction, increase import competition etc.) and others, which are likely have favourable impacts (increased exportation, the incentives to increase the production of tradable goods). What the net effect on employment is will then vary from case to case depending on the magnitudes of the different effects. There have been some studies evaluating the impacts of structural adjustment on employment structure in Turkey, and found that the employment generation ability of the Turkish economy declined in the post-liberalisation period. However none of them has examined the reason why this has happened in the Turkish case.

In this research we aim to investigate the sources of decline in employment in Turkey after 1980. In doing this, we consider that the loss of employment caused by reforms can be attributed mainly to
i) loss of market share due to import penetration both in intermediate goods and in final goods;
ii) labour-saving technological progress

In addition to these negative impacts of reforms in Turkey, increase exportation could have created new jobs in the tradable sector. Our aim is to decompose the source of loss of employment using the input-output approach. For this purpose we first examine the sources of changes in gross output and then relate these changes to labour demand. To test the effects of structural adjustment undertaken in 1980, we use the input-output tables for Turkey, which include 64 sectors. But we have to decrease the number of sectors to 24 because price indices are only available at more aggregated level. The tables of 1973 and 1990 are used in this research. Although another table for 1979 is also available, results based on this table lack credibility because it was a year of foreign exchange shortages, which caused constraints on the supply side of the economy.