Impact of Global Recession on Selected OECD Countries: A Panel Data Analysis

Abstract

1. Introduction In this study, firstly it is assessed occurrence of the crisis that began in last quarter of 2008 in USA housing market. Later it was focused on measures taken by Southern Europe Welfare States which are Turkey, Spain, Portugal, Italy and Greece over the period after crisis. The crisis raised the uncertainty in world economy and caused unsteadiness at first financial markets later real markets. The crisis that started in the finance markets has taken the reel markets under effect with time. The recession started in developed countries has affected the developing countries which are already in critical levels. While the global developments were regressing, the countries were in consensus to take precautions together to struggle with the crisis in the world economy. Turkey was affected from the crisis as many other developing and developed countries had been affected. We will firstly deal with the appearance and enlargement process of the crisis in the world, before we evaluate the effects of the crisis on Turkey. In this process Turkey took the packages as many other countries applied attention. Global recession in Turkey created negative impacts on mainly production concerning consumption, employment and investment. After the crisis, because of the recession and of TL's excessive valuableness in the amount of the speculative foreign capital income decreased, therefore total demand reduced and a big fall in importation was seen. 2. The global crisis and its effects on investment and unemployment in USA and Southern Europe welfare states According to Fink (1986), Kash and Darling (1998), a crisis is referred to as an unplanned event emerging from the internal or external environment of an organization or country which can disrupt operations, threaten people physically and mentally, endanger the viability of entities no longer able to cope with the situation using normal managerial procedures. The current global crisis originated in the USA financial market has been expanded in the EU from the beginning (Thalassinos, 2008; Thalassinos and Politis, 2011). Since this is the centre of a network that interlinks the national financial systems of almost all countries in the world, the crisis was spread very quickly. According to Mishkin (2008), the current global financial crisis has many aspects in common with past global financial crises that have occurred throughout history. The current financial crisis has had three fundamental factors as in many previous crises. The first one is mismanagement of financial innovation, second one is an asset price bubble that burst, and third one is deterioration of financial institution balance sheets. World-shaking events market capitalism quietly and shifted much of the discredited central planning that was so dominant in the Third World. China which is a large segment of the erstwhile Third World replicated the wonderful economic export-oriented model and this so-called model is Asian Tigers. Besides this, thanks to China fairly well educated, low-cost workforces were joined with developed-world technology. It was protected by an increasing rule of law, so as to release explosive economic growth. So, real GDP growth of the developing world has been more than double since 2000. Along with surge in competitive and low-priced exports from developing countries, particularly those to Europe and the U.S. flattened labor compensation in developed countries, and attenuated the rate of inflation expectations throughout the world by including those inflation expectations embedded in global long-term interest rates. Furthermore, there has been a significant decrease in global real interest rates which affect the all financial markets since beginning of the 1990. So this indicated that global saving intentions constantly had exceeded intentions to invest. Rate of consumption clearly could not keep up with the surge of income in the developing world and as a result, savings rate of the developed world increased from 24% of nominal GDP in 1999 to 33% in 2006 and the savings rate of the developed world went faster than its investment rate (Greenspan, 2007). …