Turkey's Competitiveness in a European Context

Introduction 4

Measuring Competitiveness 5

Measuring Turkey’s Competitiveness 7

Sub-index 1: Basic Requirements 10

Institutions 10

Infrastructure 11

Macroeconomy 11

Health and Primary Education 12

Sub-index 2: Efficiency Enhancers 13

Higher Education and Training 13

Market Efficiency 13

Technological Readiness 14

Innovation and Sophistication Factors 16

Business Sophistication 16

Innovation 17

Conclusions 18

References 18

Footnotes 19

Appendix 20

Contents

3Turkey’s Competitiveness in a European Context © 2006 World Economic Forum

Over the past half-decade, Turkey has beenundergoing a process of deep economic andpolitical reform. This process was triggered by themajor economic crisis in 2001 (which led to analmost 8% contraction of GDP) and the accelerationof the convergence process with the EuropeanUnion (EU) following Turkey’s designation as acandidate country in 1999 and the official opening ofaccession talks in 2005.

The tight fiscal and monetary policies adopted in theaftermath of the 2001 economic collapsesignificantly curbed inflation to single digit figures inthe 2002-2005 period and the economy quicklyrebounded, with GDP growth rates as high as 7%.Meanwhile, the wave of economic and politicalreforms to meet the Copenhagen criteria set thebasis for a more market-friendly economy andreinforced the democratic fundamentals of Turkishsociety by substantially reducing the military’s role inpolitics, adopting a new, more liberal penal code in2005 and improving the rights of women andminorities.

These achievements highlight the pace of Turkey’smodernization and demonstrate the increasingreadiness of the country to progress to a moreadvanced stage of development. However, anumber of troubling elements of economic andpolitical vulnerability have yet to be addressed,namely, large macroeconomic imbalances and thestill rather wide gap with international standards onhuman rights, freedom of expression, minority rightsand judicial independence.

These concerns, combined with the sheer size ofTurkey’s population (71 million, projected to increaseto 80-85 million by 2020), its relatively low GDP percapita (by EU standards), the continuing importanceof agriculture in the economy, cultural differencesand the extent of institutional reforms yet to becarried out, make it easy to understand theextraordinary challenges that the EU – and Turkeyalike – face along the integration process. This stateof affairs, combined with geopolitical disagreements(most particularly over Cyprus), might explain therather ideological tone assumed from time to time inEuropean national debates on Turkey’s accession ascompared to the recent enlargement in 2004 andthe accession of Bulgaria and Romania scheduled

for January 2007. In this respect, among EUcountries, it sometimes seems as if speculative fearsand suspicions have prevailed over a judiciousassessment of the actual economic, social andpolitical implications of a fully “European” Turkey.European suspicion has, in turn, generated abacklash among many Turkish citizens, who havegrown increasingly impatient with the pace andrequirements of the adhesion process.

Against such a background, this paper attempts toprovide a set of basic facts on the current state ofTurkey’s economic competitiveness. Using the WorldEconomic Forum’s methodological framework of theGlobal Competitiveness Index, we identify Turkey’smain competitive strengths and weaknesses andhighlight the areas on which the country shouldfocus in order to achieve sustainable growth andenduring prosperity for its citizens. Comparisonswith EU member, accession and candidate countrieswill further provide an idea of Turkey’s economicpreparedness to move to a more advanced stage ofdevelopment and to join the EU on a mutuallybeneficial basis.

4

Introduction

Turkey’s Competitiveness in a European Context © 2006 World Economic Forum

The goal of the World Economic Forum’s work oncompetitiveness is to contribute to a betterunderstanding of the key ingredients of economicgrowth and prosperity. By highlighting the strengthsand weaknesses of an economy, policy-makers,business leaders and other stakeholders are offeredan important tool for the formulation of improvedeconomic policies and institutional reforms.

In order to assess national competitiveness, we usethe Global Competitiveness Index (GCI), whichmeasures the set of institutions, policies and factorsthat set the sustainable current and medium-termlevels of economic prosperity. The GCI is the mostcomprehensive competitiveness index to date,measuring both the macro- and microeconomicdrivers of productivity across a large number ofcountries.1

The measurement of competitiveness represents acomplex undertaking; one cannot simply pinpointone or two areas as being critical for growth andprosperity. In this light, the GCI, with its nine distinctpillars, captures the idea that many differentelements affect competitiveness. These are identifiedas: institutions, infrastructure, the macroeconomy,health and primary education, higher education andtraining, market efficiency (goods, labour, financial),

technological readiness, business sophistication andinnovation. Each of these pillars plays a critical rolein driving national competitiveness.

The nine pillars are measured using both hard datafrom public sources (such as inflation, Internetpenetration and school enrolment rates) and datafrom the World Economic Forum’s Executive OpinionSurvey, which is conducted annually among topexecutives in all of the countries assessed. TheSurvey provides crucial data on a number ofqualitative issues (e.g. corruption, confidence in thepublic sector, quality of schools) for which no harddata exist.2

Another important characteristic of the GCI is that itexplicitly takes into account the fact that countriesaround the world are at different levels of economicdevelopment. What is important for improving thecompetitiveness of a country at a particular stage ofdevelopment will not necessarily be the same for acountry in another stage. For example, whatpresently drives productivity improvements in theUnited States is different from what drives them inTurkey. In other words, economic developmentprogresses in stages. Thus, the GCI separatescountries into three specific stages: factor-driven,efficiency-driven and innovation-driven.

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Measuring Competitiveness

BASIC REQUIREMENTS

1. Institutions2. Infrastructure3. Macroeconomy4. Health and Primary Education

Key for

FACTOR-DRIVEN

economies

EFFICIENCY ENHANCERS

5. Higer Education and Training6. Market Efficency (goods, labour, financial)7. Technological Readiness

Key for

EFFICIENCY-DRIVEN

economies

INNOVATION & SOPHISTICATION FACTORS

8. Business Sophistication9. Innovation

Key for

INNOVATION-DRIVEN

economies

Figure 1. The Nine Pillars of Competitiveness

Source: The Global Competitiveness Report 2006-2007


In the factor-driven stage (stage one), countriescompete based on low prices. They sellcommodities or simple products, taking advantageof such factors as low-cost labour and naturalresources. At this stage of development, the basicingredients of competitiveness include stronginstitutions, adequate infrastructure, a stablemacroeconomy and sufficient health and primaryeducation levels.

As countries move into stage two, the efficiency-driven stage, it is important for them to developmore efficient production practices. Product quality,rather than low price, drives competitiveness at thisstage, which depends more on efficient goods,labour and financial markets, education and trainingprogrammes that prepare the workforce for morestreamlined production (higher education andtraining) and access to and use of the latesttechnologies (technological readiness).

In the third, innovation-driven stage, countries canno longer compete just by being efficient. At thisstage, companies must compete through innovation,producing new and different goods using the mostsophisticated production processes.

So while all nine pillars matter to a certain extent forall countries, the relative importance of each onedepends on a country’s particular stage ofdevelopment. To take this into account, the pillarsare organized into three sub-indexes, each critical toone particular stage of development. The “basicrequirements” sub-index groups those pillars mostcritical for countries in the factor-driven stage. The“efficiency enhancers” sub-index includes those pillarsthat are critical for countries in the efficiency-drivenstage. The “innovation and sophistication factors”sub-index includes all pillars critical to countries inthe innovation-driven stage. Figure 1 shows how thenine pillars relate to each stage of development.

The GCI implements the concept of developmentalstages by weighting each of the sub-indexesdifferently, depending on the stage of a givencountry. More specifically, the index places moreweight on those pillars that are most important at agiven stage of a country’s development.

Based on its GDP per capita level, Turkey is now inthe efficiency-driven stage, which means thatefficiency enhancers are critical for the country’scompetitiveness (50%) and that basic requirementsremain very important (40%), while innovation andsophistication factors are less so for the time being(10%). More details on the composition of the index,the separation of countries into stages ofdevelopment and the weighting of the indexes canbe found in Chapter 1.1 of The GlobalCompetitiveness Report 2006-2007.


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In this section we carry out an analysis of Turkey’sperformance in the overall GCI, as well as in each ofthe sub-indexes and pillars of the index. In order toplace Turkey’s performance into a global context,specific comparisons are made with the averageperformance of the 25 EU member countries (EU25),the average performance of the 10 countries thatjoined the EU in May 2004 (accession 10) and theperformance of four accession or candidate countries(Bulgaria, Croatia, Macedonia and Romania).

The EU25 group average demonstrates what needsto be achieved to bring Turkey fully up to EU levelsof competitiveness. The accession 10 averageprovides an example of the level of competitivenessof those countries that have recently been grantedentry to the EU. Finally, the performance of the fourother accession or candidate countries provides asense of how well Turkey is presently performingcompared with the other countries most likely to jointhe EU in the coming years.

Measuring Turkey’s Competitiveness

GCI GCI GCICountry 2006 Rank 2006 Score 2005 Rank Changes 2005-2006

Switzerland 1 5.81 4 � 3Finland 2 5.76 2 - 0Sweden 3 5.74 7 � 4Denmark 4 5.70 3 � -1Singapore 5 5.63 5 - 0United States 6 5.61 1 � -5Japan 7 5.60 10 � 3Germany 8 5.58 6 � -2Netherlands 9 5.56 11 � 2United Kingdom 10 5.54 9 � -1Iceland 14 5.40 16 � 2Austria 17 5.32 15 � -2France 18 5.31 12 � -6Belgium 20 5.27 20 - 0Ireland 21 5.21 21 - 0Luxembourg 22 5.16 24 � 2Estonia 25 5.12 26 � 1Spain 28 4.77 28 - 0Czech Republic 29 4.74 29 - 0Slovenia 33 4.64 30 � -3Portugal 34 4.60 31 � -3Latvia 36 4.57 39 � 3Slovak Republic 37 4.55 36 � -1Malta 39 4.54 44 � 5Lithuania 40 4.53 34 � -6Hungary 41 4.52 35 � -6Italy 42 4.46 38 � -4Cyprus 46 4.36 41 � -5Greece 47 4.33 47 - 0Poland 48 4.30 43 � -5Croatia 51 4.26 64 � 13Turkey 59 4.14 71 � 12Romania 68 4.02 67 � -1Bulgaria 72 3.96 61 � -11Macedonia, FYR 80 3.86 75 � -5

Table 1. Global Competitiveness Index 2006 and 2005 comparison (Turkey and Selected Countries)

Source: The Global Competitiveness Report 2006-2007, and authors’ calculations


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Global Competitiveness Index 2006-2007 59 4.14 4.97 4.59 72 3.96 68 4.02 51 4.26 80 3.86

Basic requirements 72 4.34 5.31 4.90 62 4.50 83 4.19 55 4.60 70 4.37Efficiency enhancers 54 4.02 4.87 4.55 70 3.67 55 3.99 52 4.07 80 3.47Innovation factors 42 3.96 4.62 4.00 85 3.26 73 3.52 50 3.81 87 3.24

1st Pillar: Institutions 51 4.05 4.76 4.17 109 3.07 87 3.40 66 3.72 103 3.15A. Public institutions 53 3.90 4.62 4.06 111 2.83 87 3.23 65 3.57 102 2.96

1. Property rights 53 4.81 5.66 4.98 91 3.75 76 4.07 81 3.99 107 3.472. Ethics and corruption 47 3.30 4.23 3.40 105 2.13 93 2.40 50 3.23 91 2.443. Undue Influence 52 3.70 4.38 3.66 109 2.36 100 2.56 76 3.14 97 2.584. Government Inefficiency 56 3.12 3.42 3.16 100 2.57 83 2.78 65 3.03 86 2.77(red tape, bureaucracy and waste)5. Security 63 4.60 5.40 5.08 112 3.33 70 4.35 66 4.46 105 3.54

B. Private institutions 52 4.49 5.18 4.50 94 3.80 88 3.90 72 4.18 100 3.711. Corporate Ethics 47 4.44 5.12 4.31 80 3.89 96 3.67 69 4.01 100 3.542. Accountability 63 4.55 5.23 4.69 106 3.71 84 4.13 71 4.36 96 3.88

2nd Pillar: Infrastructure 63 3.46 5.03 4.28 65 3.41 77 3.05 51 3.98 82 2.833rd Pillar: Macroeconomy 111 3.58 4.76 4.62 35 4.92 97 3.94 73 4.30 30 5.034th Pillar: Health and primary education 78 6.28 6.71 6.54 39 6.61 69 6.38 67 6.38 54 6.47

A. Health 65 6.48 6.84 6.75 52 6.63 68 6.45 37 6.74 53 6.62B. Primary education 80 6.09 6.58 6.33 45 6.59 66 6.31 84 6.02 65 6.32

5th Pillar: Higher education and training 57 4.15 5.15 4.84 62 4.05 50 4.34 44 4.43 66 3.96A. Quantity of education 68 4.29 5.91 5.74 37 5.37 51 4.85 48 4.91 64 4.42B. Quality of education 60 3.92 4.79 4.60 70 3.71 40 4.41 43 4.34 50 4.07C. On-the-job training 37 4.25 4.76 4.18 94 3.06 58 3.77 47 4.04 76 3.40

6th Pillar: Market efficiency 47 4.35 4.73 4.44 90 3.75 76 4.03 68 4.11 91 3.74A. Good markets: distortions, 36 4.68 4.78 4.40 88 3.78 57 4.26 76 3.99 101 3.53competition and size

1. Distortions 65 3.86 4.36 4.15 113 3.12 76 3.75 97 3.40 100 3.342. Competition 37 4.79 5.04 4.70 91 3.69 65 4.12 60 4.24 101 3.593. Size 19 5.41 4.93 4.36 57 4.53 44 4.89 62 4.33 98 3.67

B. Labour markets: flexibility and efficiency 81 4.14 4.34 4.43 96 3.99 87 4.04 66 4.27 86 4.101. Flexibility 92 4.18 4.22 4.60 78 4.40 88 4.26 69 4.49 71 4.472. Efficiency 60 4.09 4.47 4.26 104 3.59 78 3.83 63 4.05 92 3.72

C. Financial markets: 58 4.23 5.06 4.48 88 3.48 73 3.80 68 4.07 81 3.60sophistication and openness

7th Pillar: Technological readiness 52 3.56 4.74 4.38 68 3.21 49 3.59 47 3.68 91 2.718th Pillar: Business sophistication 39 4.58 5.07 4.46 84 3.59 73 3.89 61 4.17 88 3.50

A. Networks and supporting industries 33 5.10 5.29 4.77 78 4.14 68 4.36 64 4.46 89 3.89B. Sophistication of firms 47 4.06 4.86 4.15 98 3.05 77 3.42 58 3.88 94 3.11operations and strategy

9th Pillar: Innovation 51 3.35 4.17 3.54 87 2.93 68 3.14 45 3.45 86 2.98

* For regions, score is the unweighted average across the region's countries** EU Accession 10

Rank Score Score* Score* Rank Score Rank Score Rank Score Rank Score Turkey EU 25 EU A10** Bulgaria Romania Croatia Macedonia, FYR

Table 2. Turkey’s Competitive Performance



9

Table 1 shows the 2006 GCI rankings and scores ofthe top ten performers, the EU members, and thefour candidate and accession countries, as well astheir 2005 rankings. The table shows that Turkeyhas seen an impressive improvement in competitiveperformance over the past year, rising 12 places inthe GCI between 2005 and 2006. This confirms thepace and importance of the progress made, placingthe country 59th out of 125 countries, well ahead ofBulgaria (72nd) and Romania (68th), but still behindall of the EU25 countries, as well as Croatia (51st).

Table 2 provides more details behind what is drivingthe overall rankings this year. The table underlinesTurkey’s relative prowess in business sophistication(39th), goods market efficiency (36th) and, to acertain extent, innovation (51st), demonstrating theeconomy’s preparedness to evolve to moreadvanced stages of development. However, it alsohighlights some areas of particular concern, such asthe stability of the macroeconomic environment(111th), infrastructure (63rd) and primary educationand health (78th), pointing to the fact that Turkeyhas not yet sorted out some of the basicrequirements of competitiveness. The appendix tothis study includes a more detailed table with all ofthe comparative scores and rankings within eachpillar down to the individual variable level.

In this context, Turkish authorities now face thedouble challenge of needing to fully prepare for amore advanced stage of development while, at thesame time, still addressing some of the more basicareas, such as reducing macroeconomicvulnerability, improving the access to and quality ofeducation, upgrading infrastructure, as well asachieving higher levels of institutional accountabilityand transparency.

The next sections will take a closer look at Turkey’scomparative performance in the three sub-indexesand nine composite pillars of the GCI.


The factors included in the basic requirements sub-index are very important for Turkey’s productivity andcompetitiveness, given its present stage ofdevelopment. As Table 2 shows, and as mentionedabove, Turkey does not score particularly well onthis sub-index: with a score of 4.34, Turkey ranks72nd out of 125 countries. Of all comparators in thetable, Turkey only outperforms Romania, and lags farbehind both the EU25 and accession 10 averages.What are Turkey’s strengths and weaknesses in thefour pillars of this sub-index?

Institutions

The quality of the institutional framework in whichbusinesses operate is critical to the efficientfunctioning of the economy and to the vitality andhealth of businesses. An environment characterizedby strong public institutions ensures that propertyrights are protected, the court system is free fromundue influence, government policies are establishedin an efficient and transparent manner, andbusinesses are not hindered by high levels ofcorruption. Private institutions must also play theirpart, with firms that function ethically and areaccountable and transparent to the public.

Turkey’s institutional environment is rated assomewhat mediocre. Regarding public institutions,ranked 53rd and with a score of 3.90, Turkey’sperformance is well behind that of the EU25 average

(4.62). It is therefore not surprising that theinstitutional environment has been highlighted asone of the major areas of concern within the contextof EU accession negotiations. Among the short-termpriorities for reform are the requirements to ensuregreater efficiency, transparency and accountabilitywithin the public administration, greaterindependence of the judiciary, strengthening the fightagainst corruption and buttressing human andminority rights, among others.3

While it is clear that much remains to be achieved, itis important to note that much progress has alreadybeen made with regard to Turkey’s publicinstitutions. Table 2 shows that they do not receive asignificantly lower rating than the average of the 10recent accession countries (4.06) and, in fact,receive a significantly better rating than the otheraccession and candidate countries, with Croatia,Romania, Macedonia and Bulgaria being ranked65th, 87th, 102nd and 111th, respectively. While notat EU levels, compared to these countries, Turkey’spublic institutions are characterized by betterprotected property rights, a more independentjudiciary, a higher degree of even-handedness onthe part of public officials, less wasteful governmentspending and better overall security in the country.Figure 2 provides a graphical comparison betweenaspects of Turkey’s institutional environment and theEU member groups and accession countries.

10

Sub-index 1: Basic Requirements

Score

Property rights Ethics and corruption Undue Influence Government Inefficiency

Turkey EU 25 Accession 10 Bulgaria Romania

0

1

2

3

4

5

6

7

Security Corporate Ethics Accountability

Score

0

1

2

3

4

5

6

7

Public Institutions Private Institutions


Figure 2. Turkey’s Relative Performance in Public and Private Institutions


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The state of Turkey’s institutions reflects a process ofinstitutional reform that has been carried out in thecountry in recent years. In particular, a number ofspecific measures have been taken in order to meetEU requirements such as those outlined in theCopenhagen criteria. This includes the abolition ofthe death penalty, reform of the judiciary, an increasein the rights of political parties and freedom ofassociation, improved protection of human andminority rights and greater freedom of expression.Other reforms include a constitutional amendmentreinforcing civilian over military supremacy and thesubordination of domestic law to international law inthe area of human rights.

Turkey’s private institutions receive slightly bettercomparative marks. Ranked 52nd overall and with ascore of 4.49, although again well behind overall EUlevels, they are on a par with the accession 10average (4.50) and well ahead of the four otheraccession and candidate countries. Most strikingly,the country’s corporate ethics, ranked 47th and witha score of 4.44, is rated as better than theaccession 10 average (4.31), also clearly shown inFigure 2. Our research thus indicates that, whilemuch remains to be achieved to bring the countryup to average EU standards, the institutionalenvironment compares relatively well to the country’speers, particularly with regards to the quality ofprivate institutions and ethical business practices.

Infrastructure

Without quality infrastructure, it is impossible toensure the efficient functioning of the economy.Efficient modes of transport for goods, people andservices, such as good quality railroads, ports andair transport, are vitally important, as are anelectricity supply free of interruption and a solidtelecommunications network.

The quality of Turkey’s infrastructure, ranked 63rdoverall and with a score of 3.46, is significantlybelow that of the EU average (5.03), and of the 10recent accession countries (4.28). Notably, Croatia’sinfrastructure, although characterized by a numberof its own inefficiencies, gets significantly highermarks, particularly with regard to the quality of utilitiessuch as telephone lines and electricity. More generally,of the four candidate and accession countries used

for comparison, only two (Romania and Macedonia)have infrastructure that is assessed as being of asignificantly lower quality than that of Turkey.

Although all infrastructure assessed is well belowEuropean averages, of particular concern is thegeneral lack of quality of Turkish railroads and anelectricity supply that is characterized by relativelyfrequent interruptions and shortages. Even moreworrisome is the quality of the country’s ports,ranked 76th overall, given the importance ofmaritime transport for Turkey’s economy. It is hopedthat the privatization of many of the ports will lead toimprovements in quality and efficiency in years tocome.

Macroeconomy

The importance of macroeconomic stability forcompetitiveness is well known. It is impossible forbusinesses to make informed decisions wheninflation is spiralling out of control or when largegovernment budget deficits lead to the misallocationof resources and drive up the cost of capital. Whenthe repayment of government debt is devouring amajor portion of a country’s resources, they cannotbe allocated effectively. Often, where debt servicingcosts are high, governments must curtail publicinvestment or, worse, vital spending on educationand public health, which erodes the competitivepotential of the country.

Although progress has clearly been made since the2001 crisis, with a number of key policy reforms,Turkey still demonstrates a number of weaknesses inits macroeconomic environment. Ranked a dismal111th overall in this pillar, Turkey’s performance isworse than the great majority of the 125 countriescovered by the GCI, including all countries in Table 2(the second worst being Romania at 97th).

Whereas inflation has been coming downsignificantly around the world in recent years,Turkey’s inflation rate of 8.2 in 2005 (the most recentyear for which we have year-end data) still places it94th overall, with the likes of Georgia, Botswana andHonduras, and well below any EU member. Further,in 2005 the government budget deficit (5.9% ofGDP) and debt (72.8% of GDP) were still very highby international standards, putting Turkey at 115th


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and 86th respectively. In this context, meeting thegovernment’s objective of an overall fiscal balancewill improve the macroeconomic framework, thusfreeing resources for essential infrastructure,education and other programmes. Turkey mustcontinue to bring down its debt levels if it is toreduce its vulnerability to rising worldwide interestrates and exchange rate volatility.

The overall picture is that, compared with the otheremerging market economies which haveexperienced financial crises in recent years, such asArgentina, Brazil and Russia, Turkey remains highlyvulnerable to external shocks. In particular, Turkey’sburgeoning current account deficit (estimated by theIMF at 6.7% in 2006) raises cause for concern, as itleaves the country prey to the whims of internationalinvestors, as demonstrated by the recent episode ofemerging market volatility in March of this year.Improvements in this area will continue to be criticalto Turkey’s ability to ensure sustainable economicprogress in the future.

Health and Primary Education

In order for a country to be competitive at all stagesof development, it must have a healthy workforcewith at least a basic level of education. Thisconcerns the minimum requirements for workers tofunction properly when performing basic tasks andcan be measured by national health indicators suchas life expectancy and rates of illness, as well as theattainment rate of primary education.

Turkey receives very low marks in this area, ranking78th overall. In terms of health indicators, Turkeyperforms significantly worse than the EU25 average,as well as that of the 10 recent accession countries.This echoes the fact that per capita spending onhealthcare remains low in the country byinternational standards, while access to careremains financially difficult for the poorest citizens. Ofthe countries in Table 2, only Romania has slightlyworse health indicators. Of particular concern areindicators such as infant mortality (79th) and lifeexpectancy (66th), which are significantly worse thanEuropean averages, as shown in the table. It is clearthat improving the health of the workforce is apriority in improving Turkey’s overall competitiveness.

Concerning basic education, while a great majorityof Turkish schoolchildren receive a primary education(89%), this in fact remains quite low by internationalstandards given the large number of countries thathave already attained universal enrolment. In fact,this places Turkey 80th out of the 125 countriescovered in the GCI, followed only by Croatia of thecountries shown in Table 1. This is far below theattainment rates of existing EU member countries.

More generally, Turkish children spend on averagemany fewer years in school compared with theEuropean standard. This is perhaps surprising giventhat the country’s spending on education is amongthe highest of OECD countries (7% of GDP), but canbe explained by the fact that much of this comesfrom private sources, given the weaknesses of thepublic school system. Turkey must work to bridgethis gap by attaining universal primary enrolment,providing a basic education to all children in thecountry and thus preparing the basis of humanresources development in the country.


Given its stage of development, those factorsgrouped in the efficiency enhancers sub-index arethe most critical for Turkey’s competitiveness(accounting for 50% of the weighting in the overallGCI). Table 2 shows that the country’s performancein this area is quite a bit stronger than in basicrequirements (described above). Yet someweaknesses remain in the three pillars of this area,as described below.

Higher Education and Training

As an economy begins to take on more complexproduction tasks, higher education and trainingbecome critical. This can be measured by thequantity of secondary and tertiary education, thequality of the educational system and the availabilityof specialized training for the workforce, all of whichbecome necessary for more sophisticated businessprocesses.

With an overall ranking of 57, the Turkish highereducation and training pillar gets better marks thanprimary education attainment (discussed above). Infact, in terms of the quantity of education obtainedwithin the country, its comparative enrolment ratesimprove the higher the level of education in Turkey,with its 79% secondary enrolment placing it 75thand 29% tertiary enrolment placing it 60th. However,these are still not high enough by Europeanstandards, including many of the recent accessioncountries, where a strong emphasis is traditionallyplaced on educational attainment, as demonstratedby the high accession 10 score in Table 2.

Concerning the quality of the educational systemand its ability to meet the needs of a competitiveeconomy in a rapidly changing businessenvironment, Turkey is also falling short comparedwith the European average, which can be attributedin part to a shortage of teachers. It is clear thathigher levels of investment in public education will benecessary to prepare the country to be competitive.

On a more positive note, while the traditionaleducational system receives rather low marks,Turkey’s private sector is doing quite a bit better interms of providing on-the-job training to workers.Here Turkey ranks a much higher 37th overall and,with a score of 4.25, does better in this area than

the accession 10 countries on average (4.18) andsignificantly better than any of the other accessionand candidate countries shown in Table 2.

Market Efficiency

The existence of well developed and functioningmarkets is a necessary precondition for an economyto achieve sustained levels of productivity andgrowth and ensure that national resources – goods,workers, services or capital – are allocated to theirmost effective use. Market efficiency becomesespecially important as economies move fromfactor-driven, lower stages of development to moreadvanced stages, where competition is based moreand more on efficiency and innovation, hence itsspecial relevance for Turkey, presently in stage two.

Turkey’s overall ranking of 47th for this pillar masks arather uneven performance in the goods (36th),labour (81st) and financial market (58th)components. Indeed, Turkey seems to haveachieved a relatively satisfactory degree of goodsmarket efficiency (only marginally below the EU25average, with a score of 4.68 versus 4.78, andhigher than the accession 10 average of 4.40 andthe other candidate countries), thanks to the size ofits internal markets (19th) but also to the recentmicroeconomic reforms aimed at reducing red tapeand bureaucracy and promoting competition.4 Onthe other hand, labour and, to a lesser extent,financial markets still suffer from a number ofrigidities and shortcomings that need to be tackledto ensure the country’s sustained competitiveness.

With respect to the labour market, flexibility (92nd) isa major concern, with low marks for hiring and firingpractices (89th), flexibility of wage determination(81st) and degree of cooperation between labourand employers (84th). It seems clear that, in Turkishlabour legislation, the well-intentioned concern foroffering maximum protection to workers hasprevailed over job creation, as suggested by theextremely low rate of employment in the country:43.7% versus an average of 65% for the EU15 (pre-2004), and above 50% for most countries in theworld. For example, Turkey’s severance pay isamong the most generous in the world, employmentrequires a very high employee-employer contributionrate (36.5% as compared to the 27.4% for the

13

Sub-index 2: Efficiency Enhancers


OECD20 average), restrictions on fixed-term andtemporary work agencies are almost unique in theOECD and, since 1992, there is no minimumpension age.5

Given that Turkey would need to generate about 14million jobs by 2010 to meet the 70% employmentrate envisaged by the Lisbon agenda, it is imperativefor the country to focus on labour market reforms,combining flexibility with labour protection. This iscrucial for generating more jobs and reducing theincentives for the informal market to prosper.According to the World Bank, one out of threeworkers in urban areas, and three out of four in ruralones, are not registered with the social securitysystem. Figure 3 provides a visual comparison ofTurkey’s performance to other European countries.The figure clearly shows that the EU on averagesuffers from inflexible labour markets, although thisshould not lead to complacency. Sticky labourmarkets are posing difficulties for the region as awhole, contributing to sluggish growth in manycountries, so that the EU labour markets are notnecessarily the best benchmark for Turkey to followin improving its competitiveness.

Financial markets are relatively more efficient, even ifwith a score of 4.23 they have not yet reached theEU25 (5.06) or accession 10 (4.48) levels. Inparticular, Turkey is doing remarkably well regardingthe degree of sophistication of financial markets(36th) and access to the local equity market (34th)given its present stage of development. However,

the banking system is still perceived as notsufficiently sound (99th), notwithstanding thecomprehensive legal and institutional reformsundertaken after the 2001 financial crisis. Also,Turkey registers rather mediocre scores for theavailability of capital from the local market in terms ofloans from the banking sector (73rd) and venturecapital (77th).

Technological Readiness

Technological readiness indicates the extent towhich a country is harnessing existing technologiesto enhance the productivity of its industries. Thisdiffers from technological innovation in the sensethat it is not necessary to invent the telephone or theInternet in order to capitalize on their productivity-enhancing qualities. Rather, it means that firms incompetitive countries are aggressive in integratingexisting and new technologies into their productionprocesses. In this sense, the technological readinesspillar measures countries’ capacities to absorbtechnology and this is complemented by theinnovation pillar (described below), which assessescountries’ endogenous innovation potential.

Among new technologies, information andcommunication technologies (ICT) are of particularimportance as they have evolved into the “generalpurpose technology”6 of our time. ICT access andusage have become fundamental elementsdetermining economies’ overall levels oftechnological readiness, given the critical spillover ofICT to the other economic sectors and its role asefficient infrastructure for commercial transactions.

Turkey, with a score of 3.56, ranks 52nd overall intechnological readiness. This is significantly lowerthan the EU25 average score (4.74) and even that ofthe accession 10 average (4.38), although it is higherthan Bulgaria’s score (3.21) and has improved a bitsince last year (3.38).

In terms of technology absorption, Turkish firms areassessed as being relatively aggressive in adoptingnew technologies (25th). This underlines thepreparedness of at least part of the private sector touse technology to upgrade production systems. Onthe other hand, foreign direct investment (FDI) is notan important source of technology for the economy,

14

Good markets Labour markets Financial markets

Score Turkey EU 25 Accession 10 Bulgaria Romania

1

2

3

4

5

6

7


Figure 3. Turkey’s Relative Performance in MarketEfficiency


with a mediocre ranking of 60th, inferring that muchpotential remains to be tapped in this area.

Turkey’s ICT readiness should also be reinforced: thecountry is placed at a rather low 55th ranking forperceived technological readiness and at 52nd forthe quality of the regulatory framework for facilitatingICT adoption. Moreover, ICT infrastructure andpenetration rates remain very low: the use ofpersonal computers (72nd), Internet (56th) andcellular telephones (52nd) are all quite low byEuropean standards, even if rising from last year.

The World Economic Forum’s Networked ReadinessIndex (NRI), which measures countries’ readiness toleverage ICT for development and growth, providesa similar assessment. Turkey was ranked 48th out of115 countries in 2005, on an upward trend startingin 2003. Of the various stakeholders in society, theNRI estimates that the Turkish business communityis the most “technology/ICT ready”, with thegovernment and individuals lagging behind.Considering the key role of technological readinessfor the country at its particular stage ofdevelopment, a continued effort from all actors ofTurkish society will be necessary to achieve betterlevels of technology absorption and ICT penetration.


For the time being, the pillars included in this morecomplex sub-index are not yet the most importantfor Turkey’s competitiveness (10%), since thecountry can still increase its productivity byimproving the factors described in the sectionsabove. However, they will gain importance as thecountry moves towards the next stage of economicdevelopment and with further integration with theEU. On a hopeful note, as Table 2 and Figure 4show, this is the area in which Turkey is alreadyshowing the greatest competitive strength.

Business Sophistication

As countries evolve to the most advanced –innovation-driven – stage of development, thesophistication of their productive systems andprocesses acquire increasing importance as keydrivers of competitiveness. The businesssophistication pillar looks both at the presence ofintegrated and high-quality productive networks(fostering the formation of clusters) and at thesophistication of companies’ operations andstrategies.

Turkey presents quite an interesting case given itsstage of development since it, in fact, shows acompetitive advantage in this pillar. Turkey isassessed as doing well regarding businesssophistication compared with its own performancein the other GCI pillars, as well as with the accession10 average and the other accession and candidatecountries. With a rank of 39 and a score of 4.58,business sophistication is by far the pillar in whichTurkey does best and outperforms both theaccession 10 average (4.46) and, by a rather largemargin, Bulgaria (3.59) and Romania (3.89).

Turkey gets particularly good marks for its cluster-related infrastructure, such as local supplier quantity(29th) and quality (39th), as well as in variablespertaining to the sophistication of Turkish firms’operations and strategies, such as their control ofinternational distribution (29th) and the extent towhich they are producing goods higher up on thevalue chain (37th).

Turkey’s prowess in business sophistication not onlybodes well for its prospects to evolve toward moreadvanced stages of development, but alsocorroborates the progress achieved in recent years.Indeed, although the rural sector still accounts foraround one-third of Turkey’s labour force and ischaracterized by a rather low level of average labourproductivity (value added per employed person) –4.6 in 2004, as compared to 9.7 and 7.6respectively for the Czech Republic and Hungary7 –it represented only 11.3% of GDP in 2004,8

significantly less than the industrial (25%) and theservices (60%) sectors, which are characterized bysignificantly higher productivity levels.

With average labour productivity of 13.5 and 15.7respectively, the industry and services sectors areperfectly competitive with the accession 10countries, demonstrating comparable – if not better– levels of business sophistication andmodernization. This “dual economy” connotation canalso, to a certain extent,9 be found within eachsector of the national economy, since moderncompanies adopting advanced technology, efficientproduction processes and exploiting economies ofscale have developed everywhere, side by side withtraditional companies that are generally medium-sizeenterprises with lower levels of productivity and lessefficient processes.

16

Innovation and Sophistication Factors

Business sophistication Innovation

Score

Turkey EU 25 Accession 10

0

1

2

3

4

5

6

7

Bulgaria Romania


Figure 4. Turkey’s Relative Performance in Innovation and Sophistication Factors


17

Innovation

In current knowledge-based and interconnectedeconomic systems, innovation becomes the onlysustainable driver of productivity growth for firmsand countries alike. By developing national dynamiccompetitive advantages (based on technology andhigh value-added products), as opposed to staticones (based on natural endowments and productionfactors with diminishing rates of return), countriesensure increasing levels of prosperity and livingstandards for their citizens. In particular, the capacityto generate endogenous innovation becomes aprecondition for countries having reached thetechnological frontier to generate sustainedproductivity increases and achieve enduringcompetitiveness.

Turkey has not reached the innovation-driven stageand can still improve its productivity by getting moreof the “basics” right (as described above), with arank of 51 and a score of 3.35. However, in spite ofremaining well behind world leaders in innovation,the economy already performs better in this areathan all accession and candidate countries with theexception of Croatia (3.45).

Looking at the three main innovation enablers –government, the business sector and researchinstitutions – Turkey scores comparatively well inbusiness sector and academia related variablessuch as the extent of research cooperation betweenthe private sector and universities (46th), theavailability of scientists and engineers (44th) andcompanies’ capacity for innovation (47th), mirroringthe performance of business in the technologicalreadiness pillar (described above).

On a more negative note, government-relatedvariables, such as public procurement of hightechnology goods and intellectual propertyprotection, remain areas of concern for the country,with rankings of 62nd and 71st respectively. Moregenerally, Turkey ranks a disappointing 70th placefor the number of US utility patents granted permillion inhabitants, suggesting that the domesticinnovation potential has not yet been fully tappedwith regard to the development of new processesand products.

Given Turkey’s stage of development, theshortcomings underlined in this section are notextremely worrisome at the present time, but shouldbe addressed in coming years as the country movesto more advanced development stages and in viewof potential future EU membership.


18

BBC News. Country Profile, Turkey. 2006. Online:http://newsvote.bbc,co.uk

Delegation of the European Commission in Turkey.Historical Review. 2006. Online:http://www.deltur.cec.eu.int

Dervis, K., Emerson M., Gros D. and Ulgen S., TheEuropean Transformation of Modern Turkey.Brussels: Centre for European Policy Studies, 2004.

Dincer Bacer D., Farrell D., and Meen D. E., Turkey’sQuest for Stable Growth. The McKinsey QuarterlySpecial Edition: Global Direction. 2003. Online:http://www.mckinseyquarterly.com

European Commission. 2005. Progress Report2005. Brussels.

European Commission. 2006. EU-Turkey Relations.Online: http://ec.europa.eu

European Commission. 2006. Economic Profile.Online: http://ec.europa.eu

European Commission. 2006. Political Profile.Online: http://ec.europa.eu

European Commission. 2006. Key Events in Turkey-EU Relations. Online: http://ec.europa.eu

European Parliament, Press Service. EuropeanParliament Critical of Slowdown in Turkey’s ReformProcess. 27 September 2006. Online:http://www.europarl.europa.eu

Financial Times. Special Report on Turkey. 26 June2006.

Kaminski B. and Ng F., Turkey Evolving TradeIntegration into Pan-European Markets. World BankPolicy Research Working Paper 3908. 2006.

This Report has explored the drivers of Turkey’scompetitiveness, based on the findings of the GlobalCompetitiveness Index. In order to place Turkey’sperformance into a global context, specificcomparisons have been made with the EuropeanUnion average, the accession 10 average, and theperformance of the four other accession andcandidate countries. The analysis has shown thatwhile Turkey does quite well in some of the morecomplex competitiveness dimensions such asbusiness sophistication and technological adoption,it continues to lag behind in some of the more basicrequirements for competitiveness, such as the stabilityof the macroeconomic environment, the quality ofpublic institutions and the educational system.

In this regard, it is notable that the country’scompetitive strengths are primarily in areas that arenormally reserved for countries at higher stages ofdevelopment, although it lags behind in more basicfactors. While this bodes well for Turkey’s ability to

be competitive at a higher stage of development, italso highlights the need to address some of themore basic issues, which – given sufficient politicalwill – should ostensibly be easier to address, andwhich are critical for enabling improvements inproductivity and growth at the present time.

Turkey should be commended for the great progressit has achieved in recent years, which is reflected inthe country’s impressive rise in the competitivenessrankings. However, this should not lead tocomplacency, as there is a challenging road ahead.For Turkey to move to a higher stage ofdevelopment and achieve European standards ofcompetitiveness, reforms and actions must still becarried out on several fronts. The World EconomicForum stands ready to support Turkey in itsdevelopment process through its annual comparativeanalysis, with the aim of providing a benchmarkingand tracking tool for policy reform andimplementation in the country.

Conclusions

References


19

Lopez-Claros A., Altinger L., Blanke J., Drzeniek M.and Mia I., The Global Competitiveness Index:Identifying the Key Elements of Sustainable Growth.The Global Competitiveness Report 2006-2007.New York: Palgrave MacMillan, 2006.

Napier G., Schwoag Serger S. and Wise HanssonE., Strengthening Innovation and Technology Policiesfor SME Development in Turkey. Malmo: IKED, 2004.

The Economist. Too Big to Handle? 23 June 2005.

The Economist. Coming Apart? 4 May 2006.

The Economist. Forecast. 2006. Online:http://www.economist.com/countries/Turkey

The Economist. Factsheet. 2006. Online:http://www.economist.com/countries/Turkey

The Economist Intelligence Unit. Country Report:Turkey. Dartford: Kent: Paterson Dartford. April2006.

Wolfowitz P., Turkey: Embracing East and West.Sakip Sabanci Lecture, Brookings Institution. 2006.Online: http://www.worldbank.org.tr

World Bank. Poverty Reduction and EconomicManagement Unit in Europe and Central AsiaRegion. Turkey Labour Market Study. April 2006.

Yilmaz B., Turkey’s Competitiveness in the EuropeanUnion: A Comparison with Five Candidate Countries– Bulgaria, the Czech Republic, Hungary, Poland,Romania – and the EU15. Ezoneplus Working Paperno. 12, Berlin: Jean Monet Centre of Excellence.2003.

1 The GCI was developed by Xavier Sala-i-Martin and Elsa Artadi for the World EconomicForum. For more details on the most recentcalculation of the GCI, see chapter 1.1 in TheGlobal Competitiveness Report 2006–2007.

2 Further information on the Executive OpinionSurvey can be found in Chapter 3.1 of TheGlobal Competitiveness Report 2006-2007,which is available from the World EconomicForum on request. Please send requests [email protected]

3 Although the penal code has been revised,recent high-profile cases involving theprosecution of intellectuals under article 301for “insulting Turkishness” continues to causesome concern in European circles.

4 However, the cost of agriculture policy, at112th, is still perceived as an hindrance forTurkey’s competitiveness: although Turkey is inthe process of reforming its burdensome andinefficient agriculture policies – accounting for4% of GDP in 2004 (K. Dervis et al, 2004) – ina CAP sense, i.e. preserving rural income but

minimizing economic distortions, furtherliberalization is needed in view of EUmembership and especially to modernize andmake the agriculture sector more efficient.

5 World Bank, 2006.6 A general purpose technology (GPT),

according to Trajtenberg (2005b), is onewhich, in any given period, contributesparticularly to an economy’s overall growththanks to its ability to transform the methodsof production in a wide array of industries.Examples of GPT include the invention of thesteam engine or the electric dynamo.

7 K. Dervis et al, 2004.8

EIU, 2006.9 For example, whereas traditional companies

account for 31% of employment in theautomotive sector and are virtually absent intelecommunications and retail banking, theirimportance is more relevant in the retailing ofconsumer goods, in which they represent88% of all labour force.

Footnotes


20

Appendix

Global Competitiveness Index 2006-2007 59 4.14 4.97 4.59 72 3.96 68 4.02 51 4.26 80 3.86

Basic requirements 72 4.34 5.31 4.90 62 4.50 83 4.19 55 4.60 70 4.37Efficiency enhancers 54 4.02 4.87 4.55 70 3.67 55 3.99 52 4.07 80 3.47Innovation factors 42 3.96 4.62 4.00 85 3.26 73 3.52 50 3.81 87 3.24

1st Pillar: Institutions 51 4.05 4.76 4.17 109 3.07 87 3.40 66 3.72 103 3.15A. Public institutions 53 3.90 4.62 4.06 111 2.83 87 3.23 65 3.57 102 2.96

1. Property rights 53 4.81 5.66 4.98 91 3.75 76 4.07 81 3.99 107 3.471.01 Property rights 53 4.81 5.66 4.98 91 3.75 76 4.07 81 3.99 107 3.47

2. Ethics and corruption 47 3.30 4.23 3.40 105 2.13 93 2.40 50 3.23 91 2.441.02 Diversion of public funds 48 3.93 5.05 4.22 108 2.59 82 3.15 50 3.90 84 3.141.03 Public trust of politicians 51 2.68 3.41 2.58 105 1.68 108 1.64 54 2.57 100 1.74

3. Undue Influence 52 3.70 4.38 3.66 109 2.36 100 2.56 76 3.14 97 2.581.04 Judicial independence 50 4.18 5.01 4.26 100 2.51 89 2.88 82 3.21 108 2.421.05 Favouritism in decisions government officials 50 3.22 3.76 3.06 112 2.22 110 2.24 55 3.07 83 2.74

4. Government Inefficiency 56 3.12 3.42 3.16 100 2.57 83 2.78 65 3.03 86 2.77(red tape, bureaucracy and waste)

1.06 Wastefulness of government spending 58 3.26 3.64 3.21 101 2.50 107 2.46 66 3.13 94 2.631.07 Burden of government regulation 64 2.97 3.21 3.11 92 2.65 52 3.10 69 2.93 70 2.92

5. Security 63 4.60 5.40 5.08 112 3.33 70 4.35 66 4.46 105 3.541.08 Business costs of terrorism 90 4.62 5.38 5.53 95 4.46 60 5.19 27 5.66 105 4.211.09 Reliability of police services 47 4.52 5.18 4.44 117 2.74 79 3.66 77 3.72 72 3.821.10 Business costs of crime and violence 51 4.69 5.44 5.17 97 3.18 72 3.92 63 4.26 95 3.211.11 Organized crime 70 4.56 5.59 5.20 118 2.95 69 4.62 84 4.20 119 2.92

B. Private institutions 52 4.49 5.18 4.50 94 3.80 88 3.90 72 4.18 100 3.711. Corporate Ethics 47 4.44 5.12 4.31 80 3.89 96 3.67 69 4.01 100 3.54

1.12 Ethical behaviour of firms 47 4.44 5.12 4.31 80 3.89 96 3.67 69 4.01 100 3.542. Accountability 63 4.55 5.23 4.69 106 3.71 84 4.13 71 4.36 96 3.88

1.13 Efficacy of corporate boards 83 4.29 5.09 4.69 104 3.96 61 4.52 67 4.47 117 3.761.14 Protection of minority shareholders' interests 58 4.51 5.01 4.29 122 2.84 97 3.68 94 3.73 93 3.731.15 Strength of auditing and 60 4.84 5.59 5.09 74 4.33 79 4.19 58 4.87 82 4.16

accounting standards2nd Pillar: Infrastructure 63 3.46 5.03 4.28 65 3.41 77 3.05 51 3.98 82 2.83

2.01 Overall infrastructure quality 64 3.51 5.11 4.34 89 2.65 101 2.36 50 4.07 80 2.802.02 Railroad infrastructure development 67 2.28 4.37 3.43 45 3.34 54 2.86 51 3.02 69 2.222.03 Quality of port infrastructure 76 3.12 4.85 4.09 71 3.31 75 3.12 72 3.30 113 1.812.04 Quality of air transport infrastructure 54 4.74 5.40 4.67 92 3.48 90 3.63 70 4.19 109 2.932.05 Quality of electricity supply 71 4.11 5.97 5.46 75 4.02 81 3.83 50 5.11 67 4.312.06 Telephone lines (hard data) 47 26.45 46.76 35.44 35 35.13 59 20.25 30 42.74 50 25.19

3rd Pillar: Macroeconomy 111 3.58 4.76 4.62 35 4.92 97 3.94 73 4.30 30 5.033.01 Government surplus/deficit (hard data) 115 -5.91 -2.01 -2.86 20 2.31 50 -0.78 103 -4.19 36 0.303.02 National saving rate (hard data) 74 18.04 20.71 19.78 89 15.85 97 13.96 21 28.82 81 17.173.03 Inflation (hard data) 94 8.20 2.53 3.18 69 5.00 98 9.00 50 3.30 2 0.503.04 Interest rate spread (hard data) 60 5.60 3.32 3.69 52 4.83 108 13.18 90 9.48 59 5.573.05 Government debt (hard data) 86 72.81 52.03 42.74 29 31.91 15 18.92 48 44.24 36 39.003.06 Real effective exchange rate (hard data) 117 22.07 7.14 11.47 110 17.30 118 23.41 84 5.52 56 -1.11




21

4th Pillar: Health and primary education 78 6.28 6.71 6.54 39 6.61 69 6.38 67 6.38 54 6.47A. Health 65 6.48 6.84 6.75 52 6.63 68 6.45 37 6.74 53 6.62

4.01 Medium-term business impact of malaria 28 6.62 6.62 6.49 75 5.81 50 6.28 42 6.42 88 5.514.02 Medium-term business impact 24 6.47 6.38 6.12 81 5.45 68 5.64 35 6.32 87 5.17

of tuberculosis4.03 Medium-term business impact of HIV/AIDS 9 6.30 5.97 5.76 66 5.10 49 5.57 30 5.86 80 4.644.04 Infant mortality (hard data) 79 28.00 4.92 6.10 48 12.00 60 17.00 32 6.00 52 13.004.05 Life expectancy at birth (hard data) 66 71.00 77.40 74.80 53 72.00 53 72.00 39 75.00 53 72.004.06 Tuberculosis prevalence (hard data) 49 44.82 18.97 30.91 44 36.14 86 187.92 57 65.00 41 33.654.07 Malaria prevalence (hard data) 76 12.93 0.00 0.00 1 0.00 1 0.00 1 0.00 1 0.004.08 HIV/AIDS prevalence (hard data) 1 <0.1 0.28 0.33 1 <0.1 1 <0.1 1 <0.1 1 <0.1

B. Primary education 80 6.09 6.58 6.33 45 6.59 66 6.31 84 6.02 65 6.324.09 Net primary enrolment (hard data) 80 89.33 94.95 92.09 45 95.15 66 91.86 84 88.50 65 92.03

5th Pillar: Higher education and training 57 4.15 5.15 4.84 62 4.05 50 4.34 44 4.43 66 3.96A. Quantity of education 68 4.29 5.91 5.74 37 5.37 51 4.85 48 4.91 64 4.42

5.01 Secondary enrolment (hard data) 75 79.23 103.05 97.88 18 102.12 63 85.09 57 88.00 65 84.075.02 Tertiary enrolment (hard data) 60 29.00 58.80 54.80 40 41.00 44 40.00 46 39.00 64 28.00

B. Quality of education 60 3.92 4.79 4.60 70 3.71 40 4.41 43 4.34 50 4.075.03 Quality of the educational system 73 3.25 4.46 4.26 83 3.11 51 3.83 53 3.77 43 4.025.04 Quality of math and science education 57 4.31 4.95 4.98 51 4.40 11 5.52 31 4.93 40 4.625.05 Quality of management schools 61 4.20 4.95 4.57 82 3.62 70 3.87 54 4.31 85 3.57

C. On-the-job training 37 4.25 4.76 4.18 94 3.06 58 3.77 47 4.04 76 3.405.06 Local availability of specialized 41 4.32 4.83 4.26 80 3.48 44 4.25 34 4.47 87 3.33

research and training services

5.07 Extent of staff training 39 4.19 4.70 4.11 114 2.64 81 3.29 61 3.60 69 3.476th Pillar: Market efficiency 47 4.35 4.73 4.44 90 3.75 76 4.03 68 4.11 91 3.74

A. Good markets: distortions, 36 4.68 4.78 4.40 88 3.78 57 4.26 76 3.99 101 3.53competition and size

1. Distortions 65 3.86 4.36 4.15 113 3.12 76 3.75 97 3.40 100 3.346.01 Agricultural policy costs 112 2.93 3.75 3.71 123 2.57 103 3.22 110 3.01 76 3.466.02 Efficiency of legal framework 56 3.81 4.85 4.11 113 2.53 88 3.07 75 3.42 96 2.916.03 Extent and effect of taxation 83 2.89 3.44 3.69 98 2.57 109 2.44 85 2.88 88 2.856.04 Number of procedures to 31 8.00 7.41 7.88 70 11.00 10 5.00 85 12.00 94 13.00

start business (hard data)6.05 Time required to start a business (hard data) 8 9.00 27.55 33.88 44 32.00 10 11.00 85 49.00 81 48.00

2. Competition 37 4.79 5.04 4.70 91 3.69 65 4.12 60 4.24 101 3.596.06 Intensity of local competition 27 5.44 5.37 5.16 99 4.15 59 4.89 52 4.99 90 4.286.07 Effectiveness of anti-trust policy 34 4.68 5.08 4.47 89 3.15 67 3.63 65 3.68 109 2.826.08 Imports (hard data) 76 35.30 56.02 66.99 15 77.36 56 47.03 36 59.30 30 62.806.09 Prevalence of trade barriers 44 4.77 5.39 5.16 89 4.01 69 4.26 54 4.60 66 4.346.10 Foreign ownership restrictions 82 4.77 5.56 5.30 101 4.34 81 4.79 74 4.90 108 4.19

3. Size 19 5.41 4.93 4.36 57 4.53 44 4.89 62 4.33 98 3.676.11 Exports (hard data) 88 28.30 56.24 62.85 29 60.80 75 33.95 39 51.43 58 41.90



continued


22

6th Pillar: Market efficiencyB. Labour markets: 81 4.14 4.34 4.43 96 3.99 87 4.04 66 4.27 86 4.10flexibility and efficiency

1. Flexibility 92 4.18 4.22 4.60 78 4.40 88 4.26 69 4.49 71 4.476.12 Hiring and firing practices 89 3.41 3.35 3.66 76 3.70 86 3.49 54 4.08 57 4.046.13 Flexibility of wage determination 81 4.83 4.44 5.36 38 5.57 26 5.72 63 5.24 32 5.686.14 Cooperation in labour/employer relations 84 4.30 4.85 4.79 105 3.93 120 3.55 95 4.13 117 3.70

2. Efficiency 60 4.09 4.47 4.26 104 3.59 78 3.83 63 4.05 92 3.726.15 Reliance on professional management 63 4.40 5.18 4.60 115 3.35 76 4.16 72 4.22 118 3.316.16 Pay and productivity 59 4.09 4.25 4.54 52 4.26 36 4.51 55 4.24 62 4.046.17 Brain drain 58 3.26 4.08 3.52 121 2.02 114 2.16 61 3.19 109 2.276.18 Private sector employment of women 69 4.61 4.37 4.39 56 4.72 80 4.50 78 4.52 20 5.26

C. Financial markets: 58 4.23 5.06 4.48 88 3.48 73 3.80 68 4.07 81 3.60sophistication and openness

6.19 Financial market sophistication 36 4.63 5.20 4.36 107 2.44 85 3.09 71 3.69 87 2.956.20 Ease of access to loans 73 2.98 4.36 3.95 63 3.22 58 3.41 52 3.56 90 2.616.21 Venture capital availability 77 2.98 4.16 3.60 54 3.32 72 3.04 66 3.15 44 3.576.22 Soundness of banks 99 4.77 6.21 5.72 81 5.10 78 5.22 70 5.36 110 4.566.23 Local equity market access 34 5.79 5.40 4.78 106 3.35 79 4.23 70 4.61 76 4.33

7th Pillar: Technological readiness 52 3.56 4.74 4.38 68 3.21 49 3.59 47 3.68 91 2.717.01 Technological readiness 55 4.08 4.85 4.28 90 2.83 74 3.59 78 3.33 99 2.637.02 Firm-level technology absorption 25 5.41 5.19 5.02 116 3.46 72 4.55 80 4.43 117 3.447.03 Laws relating to ICT 52 3.95 4.75 4.32 36 4.29 57 3.79 41 4.17 95 2.877.04 FDI and technology transfer 60 4.96 5.09 5.18 89 4.63 13 5.69 106 4.36 120 3.887.05 Cellular telephones (hard data) 52 47.99 92.03 85.03 45 60.94 54 47.13 42 63.58 53 47.717.06 Internet users (hard data) 56 1413 4478 4172 53 1590 49 2076 38 2950 74 7697.07 Personal computers (hard data) 72 5.12 38.64 26.75 66 5.94 51 11.30 37 19.07 63 6.78

8th Pillar: Business sophistication 39 4.58 5.07 4.46 84 3.59 73 3.89 61 4.17 88 3.50A. Networks and supporting industries 33 5.10 5.29 4.77 78 4.14 68 4.36 64 4.46 89 3.89

8.01 Local supplier quantity 29 5.37 5.26 4.79 77 4.45 68 4.59 66 4.61 94 4.098.02 Local supplier quality 39 4.83 5.32 4.74 79 3.83 69 4.12 62 4.31 86 3.69

B. Sophistication of firms 47 4.06 4.86 4.15 98 3.05 77 3.42 58 3.88 94 3.11operations and strategy

8.03 Production process sophistication 43 4.06 4.96 4.18 116 2.52 71 3.31 61 3.61 92 2.958.04 Extent of marketing 53 4.67 5.28 4.69 100 3.26 74 3.94 63 4.47 98 3.328.05 Control of international distribution 29 4.52 4.52 4.01 72 3.84 66 3.89 38 4.34 90 3.688.06 Willingness to delegate authority 50 3.75 4.51 3.89 116 2.62 65 3.47 64 3.51 90 3.088.07 Nature of competitive advantage 73 3.21 4.69 3.71 108 2.66 109 2.64 39 3.74 106 2.678.08 Value chain presence 37 4.15 5.20 4.44 69 3.38 73 3.29 59 3.60 88 2.99

9th Pillar: Innovation 51 3.35 4.17 3.54 87 2.93 68 3.14 45 3.45 86 2.989.01 Quality of scientific research institutions 55 3.86 4.58 4.03 68 3.67 67 3.70 46 4.04 84 3.449.02 Company spending on 62 3.19 4.11 3.52 97 2.73 70 3.07 52 3.30 101 2.64

research and development9.03 University/industry research collaboration 46 3.35 4.01 3.47 96 2.50 77 2.86 35 3.58 58 3.149.04 Government procurement of 62 3.77 4.06 3.70 104 3.21 74 3.64 69 3.69 96 3.36

advanced technology products9.05 Availability of scientists and engineers 44 4.76 5.12 4.72 49 4.68 41 4.85 38 4.93 51 4.669.06 Utility patents (hard data) 70 0.10 35.74 2.96 51 0.39 56 0.32 32 2.61 79 0.009.07 Intellectual property protection 71 3.28 4.99 4.04 98 2.71 80 3.13 56 3.66 105 2.519.08 Capacity for innovation 47 3.54 4.53 3.77 79 2.90 85 2.87 53 3.31 66 3.11


Rank Score Score* Score* Rank Score Rank Score Rank Score Rank Score Turkey EU 25 EU A10** Bulgaria Romania Croatia Macedonia, FYRcontinued


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Turkey's Competitiveness in a European Context

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