Kazakhstan vs Turkiye: GDP, Population, Grwoth and Savings
Comparing the growth and development trajectories of countries can provide significant insights into the effects of historical events, policy decisions, and natural factors. This article presents a comparative review of Kazakhstan and Turkey, spotlighting their economic indicators, demography, and factor accumulation.
GDP Growth Comparison between Kazakhstan and Turkey
The accompanying charts highlight the distinct trajectories of GDP per capita growth for both Kazakhstan and Turkey. Throughout the observation period, Kazakhstan's economic growth demonstrated lesser volatility in comparison to Turkey. The years spanning from 1990 to 1995 were particularly tumultuous for Kazakhstan, marking its secession from the Soviet Union and the subsequent economic downturn. Evidently, during this phase, Kazakhstan's GDP per capita declined, indicating a contraction of its economy. A closer examination of the charts underscores Kazakhstan's challenging initiation into independence. The rate of growth fluctuated considerably, with margins ranging from a decline of 12% to a surge of 14%. In stark contrast, Turkey maintained a steadier growth pattern during the same timeframe, devoid of such drastic fluctuations. To provide a more granular understanding of this trend, I computed the moving standard deviation of GDP per capita growth using a sliding method. The results of this computation are delineated in the subsequent chart.
The volatility in GDP growth for Kazakhstan was markedly higher during the initial decade of the observation window, a trend that inverted in the latter decade when compared to Turkey. As mentioned earlier, The heightened volatility in Kazakhstan's GDP growth during the initial post-independence decade can be attributed to its transition from the Soviet Union. This period involved grappling with new economic policies, establishing a national currency, and restructuring enterprises. However, as the 2000s approached, Kazakhstan began capitalizing on its rich oil and gas reserves. Rising global oil prices and increased foreign investment in this sector played a significant role in stabilizing its economy.
Conversely, Turkey faced its own set of challenges during the same period, such as episodes of inflation and political uncertainties, leading to more pronounced economic fluctuations.
Population Dynamics and Demographic Changes
Kazakhstan's demographic landscape underwent a pronounced transformation in the 1990s. According to Tolesh, the onset of the post-Soviet years plunged the country into an economic maelstrom. This period was marked not just by economic challenges but also by dramatic demographic shifts. The fertility rates and life expectancy plummeted; mortality and divorce rates spiked. By the 1990s, the Total Fertility Rate (TFR) had declined sharply, and life expectancy had dropped by over five years.
This tumultuous era also saw significant emigration from Kazakhstan, with many seeking new opportunities in Russia and other neighboring regions. But the storm didn't last forever. Data indicates a stabilization in Kazakhstan's population growth rate, which by 2005, maintained a steady increase of about 1.5%.
A decline in the dependency ratio - the proportion of dependents to the working-age population - often signals a nation's escape from the Malthusian trap. This phenomenon suggests that when there are fewer dependents in an economy, the savings rate increases, leading to higher production. As the population expands, this results in a boost to the overall economic output.
Analyzing the provided charts reveals a synchronicity in the economic trajectories of both countries. Around 1965, both Kazakhstan and Turkey saw their dependency ratios decline, heralding an era of economic opportunity. This favorable trend persisted until roughly 2014-2015, when the adjusted dependency ratio reached its lowest point for both nations. However, post-2015, there was an upswing in the adjusted dependency ratio, indicating a rising burden on the working-age population and signaling the narrowing of this economic window of opportunity.
Current projections suggest caution for Turkey's economic landscape, as its dependency ratio is anticipated to double over the next century. In contrast, Kazakhstan seems better positioned to manage the challenges of an evolving dependency ratio.
To encapsulate the essence of this dynamic, N. Gregory Mankiw, David Romer, and David N. Weil encapsulated in their research: “The higher the rate of saving, the richer the country. The higher the rate of population growth, the poorer the country.”
Assessing Savings Rates and the Solow Model Parameters
When comparing the savings rates of Kazakhstan and Turkey, it becomes evident that, until the year 2000, Turkey consistently maintained a higher savings rate compared to Kazakhstan. Drawing insights from the Solow model, a higher savings rate is intrinsically linked to greater capital investment, positioning an economy for potential growth.
Post-2000, a distinct shift occurred: Kazakhstan witnessed a surge in its savings rate, while Turkey's rate remained relatively stable. By the turn of the millennium, Kazakhstan's savings rate had overtaken Turkey's, marking a significant economic transition. This trend aligns Kazakhstan more favorably within the parameters of the Solow growth model.
From a broader economic standpoint, the savings rate holds pivotal importance. It serves as an indicator of a country's financial health and its capacity for future investment. A higher savings rate signifies that a country is setting aside a larger portion of its income, which can then be funneled into investments. These investments, whether in infrastructure, technology, or human capital, can catalyze economic growth, increase productivity, and foster innovation. In essence, the savings rate is a barometer for a country's potential for long-term economic growth and stability.
Factor Accumulation and the Solow Model
Economic convergence, an essential concept in modern economics, postulates that over time, poorer economies should theoretically catch up to richer ones in terms of productivity and income levels. While this theory has seen extensive discussion, its application and validation in real-world scenarios often present discrepancies.
At the heart of economic convergence lies the notion of 'absolute convergence.' Under this paradigm, countries with initial lower levels of GDP per capita should, over time, exhibit faster economic growth rates than wealthier countries. This pattern should lead to an equalization of income levels across nations. Initial analyses of our data set, spanning from 1990 to 2014, hint at this trend: a downward slope suggests countries with initially lower GDPs in 1990 generally experienced faster growth by 2014.
However, deeper statistical analysis provides a more nuanced picture. The R-squared value for our regression model is 1.7%, indicating that the model, based solely on initial GDP levels, explains only a small portion of the observed growth rate variance. This statistical insight underscores the presence and importance of other contributory factors.
Contrasting with the theory of absolute convergence is the concept of 'conditional convergence.' Research by economists such as Mankiw, Romer, and Weil has expanded upon the convergence narrative. Their findings suggest that countries with lower initial incomes only achieve faster growth rates under specific conditions. These conditions include factors like appropriate savings rates, stable population growth, and robust human capital development.
A comparative analysis of Turkey and Kazakhstan offers illustrative insights into the convergence debate. Despite having different starting GDP levels in 1990, both countries registered growth rates that positioned them above the regression line by 2014. Kazakhstan's performance stands out, as it achieved a superior growth rate to Turkey, even with a higher initial GDP per capita. This observation becomes even more compelling when considering that countries such as Mexico, Brazil, and Malaysia, with GDP profiles similar to Turkey, charted distinct growth trajectories.
Conclusion
In the expansive domain of development economics, convergence theories hold a central position, acting as a beacon to guide interpretations of economic growth patterns across countries. This analysis of countries like Kazakhstan and Turkey brought into sharp focus the nuanced interplay between expectations from these theories and the realities on the ground.
Absolute and conditional convergence concepts provide frameworks to predict growth trajectories, suggesting that nations with lower initial incomes should grow faster and converge with their wealthier counterparts over time. However, our examination of real-world data painted a more intricate picture. While some nations like Kazakhstan and Turkey exhibited growth patterns that could be explained through these theoretical lenses, anomalies persisted, demanding deeper introspection and broader understanding.
The Solow model was instrumental as a foundational framework in our exploration. Yet, the discrepancies we observed between its predictions and actual growth trends in nations emphasized the significance of factors beyond just savings and population growth.
In essence, our foray into convergence theories, inspired by Professor Ricardo Hausmann's lectures, underscores the critical need to balance theoretical postulations with empirical realities. It's a call to continually refine our models, factoring in the multifaceted determinants that shape a nation's economic journey. It reminds us that while convergence theories offer guiding principles, the roadmap to development is etched with unique trajectories, histories, and challenges.
References:
- Tolesh, Fariza A. "THE POPULATION HISTORY OF KAZAKHSTAN." April 2012: 16.
- United Nations. "World Population Prospects, the 2010 Revision." Accessed from http://esa.un.org/wpp/unpp/panel_indicators.htm.
- Mankiw, N. Gregory, Romer, David, & Weil, David N. "A Contribution to the Empirics of Economic Growth." Quarterly Journal of Economics. Date not specified: 31.
- Mankiw, N. Gregory, Romer, David, & Weil, David N. "A Contribution to the Empirics of Economic Growth." Quarterly Journal of Economics. Date not specified: 425.
- Mankiw, N. Gregory, Romer, David, & Weil, David N. QJE, 1992.
- WDI and Barro Lee Database. Accessed from barrolee.com.
NOTE: I crafted this post based on the coursework I undertaken in Professor Ricardo Hausmann's class, DEV 130: 'Why Are So Many Countries Poor, Volatile, and Unequal?'
Elvin Aliyev