An analysis of the structure and determinants of Turkey-EU trade

The aim of this thesis is to examine the structure and determinants of TurkevEU trade at both aggregate and sectorally disaggregated levels after the trade liberalisation and restructuring program of Turkey in the 1980s in order to assess the possible effects of further trade liberalisation between Turkey and the EU (le Turkey's accession to the EU). Before studying the determinants of Turkey-EU trade, we first investigate the competitiveness of Turkish manufacturing relative to the EU over the liberalisation period using Balassa's revealed competitive advantage (RCA) indices as well as the similarity of exports from Turkey and the EU using Finger and Kreinin similarity indices. Our analysis on the similarity of exports includes comparison of the similarity of exports from Turkey and the three Mediterranean countries, namely Spain, Greece and Portugal which have similar factor endowments. Regarding the overall similarity of exports from Turkey and the EU as a whole, we find that the similarity of exports from the two areas has increased noticeably over the liberalisation period when there was a shift in commodity composition of Turkey's exports towards manufactured goods. Our results suggest that the assessment of the similarity of exports from Turkey and the three Mediterranean countries should consider the type of the products as the similarity of exports in agricultural goods differs substantially from that of manufactured goods. Our results on determinants of Turkey-EU trade indicate that wages appear to be a key factor in explaining Turkey's exports to the EU not only for loww -tech industries, but also for medium and high-tech industries. This suggests that the remarkable increase in Turkey's exports in the 1980s relied heavily on low wage levels which not only increased the cost competitiveness of the country but also reduced domestic demand and hence forced firms to exploit foreign markets. In conclusion, our results indicate that the structural adjustment and trade liberalisation reforms of Turkey in the early 1980s have brought the Turkish economy closer to the EU and put Turkey's economy on the right track for integration with the EU or Europe at large, notwithstanding the huge problems that have emerged.