The impact of Covid-19 on Turkey’s non-recoverable economic sectors compensating with falling crude oil prices: A computable general equilibrium analysis

Abstract

Human beings face unprecedented Covid-19 pandemic outbreak since the beginning of 2020. This disease started to change economic, social, and individual conventional behaviors. Several economic activities have sharply declined, and demand for commodities is decreasing, such as oil. This commodity has also suffered from disagreement among Organization of Petroleum Exporting Countries (OPEC)+ members to deal with the amount of cutting oil production. This situation adds a supply-side problem into declining demand due to Covid-19. Turkey, as an emerging economy, highly depends on imported oil and suffers from this pandemic disease. This study aims to analyze the compensating role of falling oil prices for impacts of Covid-19 on non-recoverable sectors in Turkey, e.g. tourism, travel, and transportation. The main argument in the study, that is falling prices in oil can contribute to compensation for losing revenue from tourism, travel, and transport. Throughout the study, ORANI-G as a multisectoral computable general equilibrium model is employed. Three scenarios, namely Scenario-1, 2A, and 2B, are set to analyze the effects of falling oil prices as compensation for Covid-19 in the selected sectors. Results show that Covid-19 decreases gross domestic product by 1.16 but falling oil prices as 25 and 50% compensate for this decrease by 0.72 and 1.56% gross domestic product increases, respectively. It is concluded that through the falling oil prices, Turkey’s dependence on crude oil imports might provide a new reparation to overcome non-recoverable impacts. This study is scoped with selected sectors and falling oil prices. Other economic and social sectors need to be investigated in terms of challenges of Covid-19 and opportunities for declining crude oil prices. Besides, competitiveness based on the scale of firms and the ability to access business finance should be analyzed within the changing business model in the post-coronavirus period.