The effect of stabilization programs on income distrubution during liberazation

ABSTRACT Liberalization trend İn the world economy that has started in the mid 1970s has increased its pace starting from the 1980s. During this time, international financial institutions constantly advise debt- stricken developing countries to liberalize their economies as a way of getting out of the crises and to promote development and welfare. However, during last decades, developing countries faced bigger challenges compared to earlier periods. Trade and financial liberalization efforts in the developing countries have caused a number of problems in these countries. Furthermore, stabilization policies that employed to solve these problems have caused distributional problems. The channels through which stabilization policies affect income distribution are devaluation, economic growth, and tight fiscal and monetary policies. During the 1980s, income distribution both between developed and developing nations and within the countries has substantially worsened by the liberalization policies and crises that were caused by these policies. Our country with increased trade and financial liberalization efforts during the 1980s also has been experiencing the similar problems. However, liberal economic policies that were carried in the 1980s were not enough to stabilize the Turkish economy. Especially, after the year of 1989 in which capital flows were liberalized, Turkish economy became very fragile. Economic and financial crisis occurred in the last decades were mostly initiated by internal economic imbalances and especially by external factors caused by liberalization efforts. Stabilization policies employed by the governments have further worsened the already worse income distribution within the country. This study analyses the instabilities occurred during the liberalization efforts. It also studies the effects of stabilization programs on income distribution in Turkey. A large number of case studies and papers that studied income distribution patterns during the liberalization era in the world and in individual countries are also included in the study to get a comprehensive view of the issue. IX