Analysis of Emerging Markets: Turkey and Peru - Essay Example

Emerging Markets Emerging markets are becoming the fastest drivers of global development. These markets are expected to grow twice or thrice the number of developed countries like the United States. The public investor continues to underweight these developing markets in their collections. Corporate profits seem to grow rapidly when there is a higher economic growth. One of the reasons why developed markets like the U.S have been ranked high is because of the development of markets outside the country. Some nations are borrowing a leaf from the U.S and are performing well as emerging markets. They include Brazil, Indonesia, Chile, Israel, Egypt, Turkey, Pakistan, Russia, Peru, and Korea. In this context, Turkey and Peru are the markets discussed, putting in mind that some of the factors that have contributed to their emergence are: The significance of trade, the role of the government, investments and savings, and education among others (Larrain, Helmut &Maltzan 67). Factors that have allowed Turkey to move up the development ladder Importance of investments and savings Historically, Turkey has been dependent on developed markets for a huge portion of its investments and savings. However, the country is now focusing to engage in more business with other regions of the world, with the Middle East, Asia, and Africa included. It is this shift in focus that is accelerating the growth and investment of Turkey. In addition to this, Turkey has in recent years overcome a sequence of economic and political challenges and is now benefiting from a period of solid and stable economic growth, which enables it to grow at least five percent yearly. Its world class characteristics include the strategic position at the crossroads of the Middle East, Europe, and Asia. To add on these strategic positions, the huge size of its domestic markets also attracts some investors, who remain confident about the country’s features. The goods market below shows relationship between the savings and investments of Turkey at equilibrium. The role of the government, its policies and programs The structural transformation of Turkey was generated by political stability and economic reform. First, the newly implemented FDI frame law by the government marks the foremost instalment of this economic reform to alter the investment setting in the country and make it attract global investors. The FDI frame law ensured equal treatment to all investors regardless of the initial authorization request to move dividends freely, to be guarded against expropriation, to get access to real estate, and to hire emigrants. Turkey reduced corporate tax from approximately 33% to 20% for each company. The reason for doing these was to make Turkey one of the leading liberal nations worldwide in terms of the investment environment and for FDI framework. The consequence of this transformation have been promising and significant, since the country started to grow at a faster rate after 2001 and it now has the utmost industrial power as well as the one of the leading free-market economies. The economic programs were founded on a powerful macroeconomic policy framework. Some of the broad-ranging structural government reforms are a key renovation of the banking system. A liberal foreign investment government, a better investment atmosphere, and privatization are the major pillars of government reform. The economic programs joined with supervisory and regulatory reforms improved the Turkish economy’s toughness to shocks. Consequently, Turkey emerged from the international crisis to be among the globe’s fastest-growing economies (Aguiar, & Gopinath 23). Educational level The availability and access of highly learned personnel is a position-specific element that has made Turkey emerge economically. High educated person are highly required by businesses that invest in technological businesses and have assets in skills like the capabilities to develop intangible or differentiated products. The presence of elites in interaction with labour costs has impacts on Turkey’s decision to go international in the sense that it may find experts on location or can convey its own personnel from the local position. This involves a great quantity of cost for investment as shown in the labour graph. (Guimaraes & Karacadag 34). Even though some improvements have been achieved in the education sector, Turkey still had to do more in the sector to maintain its status as an emerging market. This will involve the Bologna model or process that will ensure that higher education is improved to suit the economic growth. The model will ensure that specialization and division of labour become more productive. Importance of trade Turkey has been experiencing export-led development since the late 90s. This is according to Erce 5. By desirable quality of economic reforms, limitations on imports have been lifted, liberalization of exchange transactions, and safeguard practices were lessened. The outcomes of the economic reforms realized during the last years, both the composition and volume of the Turkish trade have changed drastically, thus increase in exports. Turkey has been on the front line in promoting investment and trade with its previous regional rivals, Iran and Syria, thus making its yearly trade with the Arab world a big success. Factors that have contributed to Peru’s emergence market The role of non-tariff policies in trade For a long time now, trade linearization has been utilized as a development tool as evidenced benefits realized to Peru while engaging in world trade. Bilateral, multilateral, and regional trade negotiations plus non-reprisal concessions have resulted in a credible reduction in average tariff safety. With positive market access states, international trade has rocketed to previously unrealized levels, thus raising the standards of living and welfare of the country.# The role of government According to the finance minister of Peru, Luis Miguel, the government is seeing through a package of reforms that will enable the economy to be much predictable, even if it, will mean fighting with the state’s unions. The administration under President Ollanta Humala is pushing forward programs of measures such as procurement law and labour market reforms. In addition, a third time of capital market reform is being put in place to facilitate SME entry and a restoration of fiscal regulations. Such reforms have made and would still make Peru a better place for investment and give a favourable environment for trade and economic growth. Rapid economic growth According to the economic growth theory, there may be a long-term increase in employment, output, or income. Peru has a record of rapid economic growth due to a sustained procedure of economic reforms and conducive external conditions. The fall in trade during the final years of 2008 included a fall in the Peruvian exports, leading to the slowdown in economic growth, indicating the theory of prices. However, authorities reacted quickly and initiated counter-cynical measures. For instance, the central Bank offered plenty of liquidity stimulus strategy that was equal to 2.5 percent of GDP in the year 2009. It therefore began to raise the interest rate to the present level at 3%. In the year 2010, recovery was realised so quickly that GDP increased at the rate of 9%. From that time to date, Peru has maintained a stable economic growth that has seen it produce surpluses for the international market. Depreciation or the fall of trade and investment thus relate as indicated by the Solow model below. The commodity advantage of Peru According to Kamin, Schindler, and Shawna, Peru can trace its partnership with other countries for a long period of time. It is this same tradition that has helped to push the country into a thriving economy today. AT the same time, much of Peru’s success depends on its export of copper, oil and gold. Fortunately, international mining companies tend to continue having interest in these valuables, thus maintaining its global image. The production Possibility Curve (PPC) below shows the maximum production of copper and gold. Difficulties that the above countries may run into, as emerging markets One of the major challenges that the above emerging markets might face is boosting productivity so that they can continue developing in the competitive world of business. The biggest struggle will most likely to be labour reform, which might not be easy to achieve in the long run. This means that identifying labour markets might still be rigid even when time changes. On top of this, the cost of fines continues to rise, and payroll deductions may not reduce anyway. The two countries will have to seek for appropriate ways to be more flexible and at the same time maintain a balance with the rights of labour, which is not something to be achieved within a short period (Bekaert 80). It is also clear that the above emerging markets are moving towards a variation of state capitalism. Probably, this may imply a delay in reforms that favour the productivity of the private sector and economic share, as well as a greater economic obligation for public enterprises, trade protectionism, imposition of capital controls, resource nationalism, and industrial policies. Further, while Turkey seems to run contemporary account surpluses, it is in real sense running deficits. These deficits will most likely be financed in risker techniques such as more debt than equity, more foreign currency debt as compared to domestic currency debt, and more short-term debt compared to long-term debt. For the case with Peru, the idea of non-tariff barriers will most likely imply a negative effect on trade. Works Cited Aguiar, Mark, and Gita Gopinath. Emerging market business cycles: The cycle is the trend. No. w10734. National Bureau of Economic Research, 2004. Bekaert, Geert. "Market integration and investment barriers in emerging equity markets." The World Bank Economic Review 9.1 (1995): 75-107. Guimaraes, Roberto Pereira, and Cem Karacadag. The empirics of foreign exchange intervention in emerging markets: the cases of Mexico and Turkey. Vol. 4. International Monetary Fund, 2004. Kamin, Steven, and Karsten Von Kleist. The evolution and determinants of emerging market credit spreads in the 1990s. No. 68. Bank for International Settlements, Monetary and Economic Department, 1999. Kamin, Steven, John Schindler, and Shawna Samuel. "The contribution of domestic and external factors to emerging market devaluation crises: An early warning systems approach." FRB International Finance Discussion Paper 711 (2001). Larrain, Guillermo, Helmut Reisen, and Julia Von Maltzan. Emerging market risk and sovereign credit ratings. No. 124. Organisation for Economic Co-operation and Development, 1997. Luo, Yadong, and Rosalie L. Tung. "International expansion of emerging market enterprises: A springboard perspective." Journal of international business studies 38.4 (2007): 481-498. Ercel, Gazi. "Globalization and the Turkish economy." Transcript of Presentation at Vanderbilt University (2006). Read More