"The failed coup now raises the risk that capital flows to Turkey will dry up—or go into reverse"by George Magnus / July 18, 2016 / Leave a comment
The military coup in Turkey last Friday night was over almost as quickly as it began. Political analysts have much explaining to do when it comes to issues such as: what happened and why; how President Recep Tayyip Erdogan’s appeal to democratic processes to bolster his anything-but-democratic style of government will play out; and what the geopolitical implications might be for a country that straddles a fractious Europe and the troubled Middle East, and that is home to vital oil and gas pipelines and trade. Against a backdrop of a vicious and at times violent purge in Turkey in which more than 6000 people, including judges and senior legal officials, have been detained, what economists can add is a sense of the scale of Turkey’s vulnerability to instability. For it is clear that Turkey will not survive a sudden stop or abrupt reversal of capital flows. It is highly dependent on these.
According to the Foreign Office, roughly 2.5m British nationals visit Turkey each year. They make up about seven per cent of total tourist arrivals, though both numbers have been declining because of security concerns. Turkey was until recently the world’s sixth most popular destination for tourists. Visitors know that Turkey has a large population of 78m. It has a GDP of $720bn (£554bn at current exchange rates), and per capita income of around $10,500 (though some places such as Istanbul are wealthier). Turkey’s income per head is about the same as in China, though China’s GDP, at about $11trn, is second only to the United States’.
Turkey’s geo-strategic location is very important. The country is situated on the border of, but in so many ways outside, the EU, where it slots into European markets and supply chains, and also serves as a conduit into the Middle east and Russia. Turkey’s principal trade partner for exports and imports is the EU. Other big exports markets for Turkey are Iraq, Russia, the US, and Iran. For the EU, Turkey is the fifth biggest market for exports, and the seventh largest for imports. Turkey trades…