The unequal exchange effect of the relationship purchasing power parity and exchange rate: The Turkish case

When GDP values in terms of purchasing power parity exchange rate and market exchange rate are compared in core and peripheral countries in the current world capitalist system, a significant finding emerges: GDP values in terms of purchasing power parity exchange rate and market exchange rate in core countries appear to be quite approximate, whereas the same values remarkably differ in peripheral countries. Moreover, core countries own relatively more valuable currencies, comparative price level and higher wages. However, the latter group has undervalued currencies, lower comparative price levels and wages. When these two findings are evaluated in regards to international trade, it is clearly seen that the situation of the undervaluation of peripheral countries' currencies with respect to their purchasing power parity provides core countries with advantages that allow them to purchase more goods in peripheral countries than they can do in their own. This situation simply proves that peripheral countries tend to sell products at lower prices, compared to the prices of the same items in core countries. In a sense, peripheral countries are being exposed to unequal exchange in international trading due to the fact that they have undervalued currencies and comparative price levels. This study, then, aims to reveal the effects of unequal exchange in foreign trade activities between core and peripheral countries because of deviation from purchasing power parity exchange rate. Statistical advancements in measuring international purchasing power parity has paved the way for a revolutionary method about calculating unequal exchange (Köhler, 1998; Reich, 2004, 2006, 2007). In the application stage of the study, this method has been used to calculate the effects of unequal exchange, which stems from exchange rate mechanism, between core & peripheral countries and between Turkey & developed countries in the period of 1980-2000.