In addition to moving people out of poverty, Turkey was successful in preventing downward economic mobility. From 2002 to 2011, 41 percent of the poor moved to the vulnerable group while 40 percent of the vulnerable group moved into the middle class (Figure 3). On the other hand, only 2 percent of the middle class fell into the vulnerable group and 1 percent of the vulnerable group descended to poverty. Turkey was able to establish a stable environment for the middle class and the vulnerable while providing upward mobility for the poor.

Figure 3. Protection of the Vulnerable Group, 2002-2011

||Origin<br>|Percentage|moving to 2011<br>|||
|---|---|---|---|---|---|
||(In 2002)|Poor|Vulnerable|Middle Class||
|Poor|43|58|41|0|100|
|Vulnerable|37|1|58|40|100|
|Middle class|20|0|2|98|100|
|Total|100|22|38|40|100|

_Source_ : Azevedo and Atamanov (2014) Notes: transition matrix is based on synthetic panel for 2002-2011. Welfare aggregate is consumption (+health, +durables) per capita and poverty line is 5 and 10 USD PPP 2005. Rsq for consumption model is 0.36. Explanatory variables include year of birth cohort, number of children, education of the head of household, rural/urban dummy and different interactions between these variables. Sample: head of households 25-55 years of age. Values based on lower bound estimates.

# **3. METHODOLOGY**

Four financial indicators are examined: Bank Account Usage, Savings, Debit and Credit Card Usage, and Borrowing. While savings rates are low in Turkey, the use of bank accounts, credit, borrowing, and informal lending is high. In terms of the trends in financial inclusion, savings patterns increased while use of credit and debit cards diminished between 2011 and 2014.

An **Equity Adjusted Coverage Rate**<sup>2</sup> (EACR) in these four indicators is calculated for Turkey and compared to other countries across the world. The EACR index is a measure of the coverage of financial services adjusted for equity in the use of these services across ` _circumstances’_ . The characteristics or circumstances that are accounted for are gender, age, education, income quintile, and urban/rural. Differences in individual and household level data also yield interesting results, since characteristics at the individual-level are more descriptive of the population rather than characteristics of the head of household.

Using the EACR index, three types of analyses are presented:

1. The dissimilarity index in financial indicators is decomposed into composition, equalization, and scale effects.  The dissimilarity-index is a measure of dissimilar coverage rates across groups (gender, age, education, and income). At the individual level, gender accounts for large dissimilarity differences in Bank Account use as well as Debit and Credit Card usage. However, gender effects disappear when using household level data since characteristics are the head of household.

2. Turkey’s EACR index and its components are compared to nearest neighbor countries in terms of coverage rates. For example, in Bank Account Ownership, Turkey’s coverage rate is most similar to Brazil, Bosnia and Herzegovina, Italy, and the United Arab Emirates out of 145 countries.

> 2 See the appendix for an explanation of the methods used in this paper: the Equity Adjusted Coverage rate (EACR) calculation, calculation of components in differences in the EAC, and Shapley decomposition.

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