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Turkey's Future Transitions

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Turkey's Future Transitions _______________________________________________________________ Public Disclosure Authorized Turkey’s Future Transitions _______________________________________________________________ Republic of Turkey Systematic Country Diagnostic Public Disclosure Authorized Public Disclosure Authorized Report No: 112785-TR October 12, 2016 Public Disclosure Authorized _______________________________________________________________ CURRENCY EQUIVALENTS (Exchange Rate as of May 1, 2016) Currency Unit Turkish Lira US$1.00 TL 2.86 Weights and Measures: Metric System ABBREVIATIONS AND ACRONYMS AFAD Prime Ministry Disaster and Emergency Management Presidency BEEPS Business Environment and Enterprise Performance Survey CEPEJ European Commission for the Efficiency of Justice CPI Consumer Price Index ECA Europe and Central Asia ECE Early Childhood Education EE Energy Efficiency EIA Environmental Impact Assessment EMRA Energy Market Regulatory Authority EPIAS Energy Exchange EU European Union FDI Foreign Direct Investment GDP Gross Domestic Product GNI Gross National Income HBS Household Budget Survey IRA Independent Regulatory Agency LFP Labor Force Participation LFS Labor Force Survey LNG Liquefied Natural Gas LPI Logistics Performance Index NUTS2 Nomenclature of Territorial Units OECD Organisation for Economic Co-operation and Development PFMC Public Financial Management and Control PISA Program for International Student Assessment PMR Product Market Regulation PPL Public Procurement Law PPP Purchasing Power Parity R&D Research and Development SCD Systematic Country Diagnostic SILC Survey on Income and Living Conditions SME Small and Medium Enterprise SuTPs Syrians Under Temporary Protection TDHS Turkey Demographic and Health Survey TEIAŞ Electricity Transmission Company TFP Total Factor Productivity TUIK Turkiye Istatistik Kurumu (Turkish Statistical Institute) TVET Technical and Vocational Education and Training WDI World Development Indicators WEF World Economic Forum UNHCR United Nations High Commissioner for Refugees Vice Presidents: Cyril Muller, Dimitris Tsitsiragos IBRD Country Director: Johannes Zutt IFC Regional Director: Tomasz Telma Senior Directors: Felipe Jaramillo, Ana Revenga Practice Director: Satu Kahkonen Practice Managers: Ivailo Izvorski, Carolina Sanchez-Paramo Co-Task Team Leaders: Ulrich Bartsch, P. Facundo Cuevas Contents SUMMARY AND OVERVIEW ................................................................................................................ I A. Who Will Likely Be the Poor and the Bottom 40? ............................................................ iii B. What Will Be the Engine of Growth? ................................................................................ iv C. How Can Growth Be Sustainable? ..................................................................................... v D. Prioritization ....................................................................................................................... v E. Overview .......................................................................................................................... viii 1. WHO WILL LIKELY BE THE POOR AND THE BOTTOM 40? ............................................... 1 A. Progress in Reducing Poverty ............................................................................................. 1 B. Progress in Sharing Prosperity ............................................................................................ 7 C. Profiling the Poor and the Bottom 40 ............................................................................... 10 D. Main Contributors to Poverty Reduction .......................................................................... 13 Challenges Across Regions ............................................................................................... 18 E. Projections for Poverty and Shared Prosperity in 2025 .................................................... 21 Participation of Women in the Workforce ........................................................................ 22 Investment in Human Capital: Education, Skills, and Health .......................................... 25 Income Dynamics Simulation ........................................................................................... 28 2. WHAT WILL BE THE ENGINE OF GROWTH? ....................................................................... 30 A. Turkey’s Economic Growth through the Macro-Economist’s Lens ................................. 30 Growth Accounting ........................................................................................................... 34 Macro-fiscal Risks ............................................................................................................ 36 B. Prospects for Agriculture .................................................................................................. 38 C. Making Things Better and Better Things .......................................................................... 40 Resource Allocation .......................................................................................................... 43 Innovation ......................................................................................................................... 45 Entrepreneurship .............................................................................................................. 45 Corporate Governance ..................................................................................................... 45 D. Providing Finance ............................................................................................................. 46 E. Setting Rules and Enforcing Them ................................................................................... 48 Institutional Quality .......................................................................................................... 48 Competition ....................................................................................................................... 50 Corruption ........................................................................................................................ 51 Judicial Services ............................................................................................................... 51 3. HOW CAN GROWTH BE SUSTAINABLE?................................................................................ 53 A. Increasing Urbanization .................................................................................................... 53 B. Greening Turkey’s Growth ............................................................................................... 54 Environmental Footprint .................................................................................................. 55 Water ................................................................................................................................. 56 Energy ............................................................................................................................... 57 Land .................................................................................................................................. 59 C. Investing in Resilience ...................................................................................................... 59 4. PRIORITIZATION .......................................................................................................................... 61 A. A Conceptual Model for Creating Good Jobs ................................................................... 62 B. Solid Foundations ............................................................................................................. 63 C. Productive Individuals ...................................................................................................... 64 D. Dynamic Firms ................................................................................................................. 65 E. Public Assets and Resources ............................................................................................. 66 REFERENCES .......................................................................................................................................... 70 ANNEX 1. DATA GAPS DIAGNOSTIC ................................................................................................ 74 List of Tables, Figures, and Boxes Table O.1: List of Constraints and Scores ................................................................................................. viii Table 1.1: Demographic Profile of Poor, Non-poor, and Bottom 40 Populations, 2014 ............................ 10 Table 1.2: Profile of Populations in an Assets Framework, 2014 ............................................................... 12 Table 1.3: Growth and Inequality Poverty Decomposition (percentage points) ......................................... 13 Table 1.4: Intra and Inter Area Poverty Decomposition, 2002–13 (in percentage of overall poverty reduction) .................................................................................................................................................... 14 Table 1.5: A Typology of Regions by Their Level of Endowments, Use and Returns of Household Assets .................................................................................................................................................................... 19 Table 2.1: Potential GDP Growth Scenarios (2016–30)
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