Mahfi Eğilmez explains: The reality of the dollar exchange rate and the informal economy in GDP calculations
Economist Mahfi Eğilmez analyzed the effects of factors such as the dollar exchange rate, inflation, and the informal economy on Turkey's GDP calculations. Eğilmez evaluated the reasons why GDP appears high in dollar terms and the fallacies of calculations based on Purchasing Power Parity (PPP).
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Economist Mahfi Eğilmez examined the relationship between Gross Domestic Product (GDP) calculations, the dollar exchange rate, and inflation in his article, drawing attention to the problems encountered in measuring Turkey's economic power in dollar terms.
Mahfi Eğilmez stated that the reason GDP appears high in dollar terms is that the dollar exchange rate has lagged behind the increase in inflation.
THE RELATIONSHIP BETWEEN THE DOLLAR EXCHANGE RATE AND INFLATION
Eğilmez stated that Turkey's average inflation in 2023 was 67.5 percent and its GDP at current prices reached 26,276.3 billion TL. The average dollar exchange rate for the same year was 23.5, which led to GDP being calculated as 1,119 billion dollars.
However, Eğilmez emphasized that if the dollar exchange rate had increased at the same rate as inflation, GDP would have been 952 billion dollars, and per capita income would have been 11,154 dollars. In this case, he noted that the fact that the change in the dollar exchange rate remained below the increase in inflation caused GDP and per capita income to appear higher in dollar terms than they actually are.
THE IMPACT OF THE INFORMAL ECONOMY
Mahfi Eğilmez stated that the informal economy in Turkey accounts for approximately 20 percent of GDP and that this situation negatively affects GDP calculations. Eğilmez expressed that because the informal economy is not taken into account, GDP is calculated as lower than it is, but this deficiency is indirectly compensated for by the suppression of the dollar exchange rate.
IT YIELDS MISLEADING RESULTS
Mahfi Eğilmez stated that GDP calculated using Purchasing Power Parity (PPP) yields misleading results in developing countries. Emphasizing that GDP and per capita income appear higher than they are according to PPP due to the low wages of labor in Turkey, Eğilmez stated that it is a tragicomic situation for developing countries to boast about these calculations.