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The Impact of a Customs Union with the EU on Turkey’s Welfare, Employment and Income Distribution: An AGE Model with Alternative Labour Market Structures

Author

Listed:
  • A. De Santis, Robert

    (The Kiel Institute of World Economics)

Abstract

The economic implications and the income distribution effects of the customs union (CU) between Turkey and the European Union (EU) have been studied by applying a general equilibrium model to the Turkish economy under alter - native hypotheses for the labour market. The numerical results show that, regardless of the assumptions postulated for the labour market, manufacturing production and trade, in particular textiles, wearing apparel, leather and fur products, grow despite the protection loss; and the standard VAT rate has to increase to 21-22% for the trade policy to be revenue neutral. The CU is poten - tially Pareto superior. Urban (rural) groups are better (worse) off in the wage curve scenario, where wages and unemployment are negatively related; while urban (rural) groups are worse (better) off in the scenario with fixed or flexi -ble real wages. Also the impact on income inequality is ambiguous, rising (declining) in the wage curve (fixed and flexible real wage) scenario. This lat - ter result is partly driven by the large impact on income inequality between urban and rural groups. However, despite the relatively large fall in tariffs, the impact on overall income inequality is small. Regarding the impact on employ - ment, the model predicts the creation of 68,000 new jobs in the wage curve sce - nario, and the loss of almost 100,000 jobs in the scenario with fixed real wages.

Suggested Citation

  • A. De Santis, Robert, 2000. "The Impact of a Customs Union with the EU on Turkey’s Welfare, Employment and Income Distribution: An AGE Model with Alternative Labour Market Structures," Journal of Economic Integration, Center for Economic Integration, Sejong University, vol. 15, pages 195-238.
    • Handle: RePEc:ris:integr:0130
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    Citations

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    Cited by:

    1. Glenn W. Harrison & Thomas F. Rutherford & David G. Tarr, 2014. "Trade liberalization, poverty and efficient equity," World Scientific Book Chapters, in: APPLIED TRADE POLICY MODELING IN 16 COUNTRIES Insights and Impacts from World Bank CGE Based Projects, chapter 11, pages 255-286, World Scientific Publishing Co. Pte. Ltd..
    2. Lykke E. Andersen & Johann Caro & Robert Faris & Mauricio Medinaceli, 2006. "Natural Gas and Inequality in Bolivia after Nationalization," Development Research Working Paper Series 05/2006, Institute for Advanced Development Studies.
    3. van Leeuwen, Nico & Lejour, Arjan & ten Cate, Arie, 2007. "The quality of Bilateral Services Trade data," Conference papers 331660, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    4. Andersen, Lykke Eg & Faris, Robert, 2002. "Natural Gas and Income Distribution in Bolivia," Documentos de trabajo 1/2002, Instituto de Investigaciones Socio-Económicas (IISEC), Universidad Católica Boliviana.
    5. GAUTHIER Fatima, EL HADAD & Etienne, MONTAIGNE & Michel, PETIT & Hilel, HAMADACHE & Soliman, Ibrahim & Mashhour, Ahmed & Gaber, Mohamed & Ait El Mekki, Akka & El Hindi, Atieh & Thabet, Haitham & Thabe, 2011. "A review of the national and international agro-food policies and institutions in the Mediterranean Region," MPRA Paper 66801, University Library of Munich, Germany.
    6. Roberto A. De Santis, 2003. "The Impact of a Customs Union with the European Union on Internal Migration in Turkey," Journal of Regional Science, Wiley Blackwell, vol. 43(2), pages 349-372, May.
    7. Abdul Aziz & Javed Ahmed Memon & Aleem Ahmed Qader, 2023. "Functional income distribution in Pakistan: Co‐integration and vector error correction model analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 1081-1091, January.
    8. Cakmak, Erol H. & Dudu, Hasan, 2013. "Trade Liberalization and Productivity Growth: A Recursive Dynamic CGE Analysis for Turkey," 2013: Productivity and Its Impacts on Global Trade, June 2-4, 2013. Seville, Spain 152358, International Agricultural Trade Research Consortium.
    9. Aykut Mert Yakut & Ebru Voyvoda, 2017. "Intertemporal CGE Analysis of Income Distribution in Turkey," ERC Working Papers 1703, ERC - Economic Research Center, Middle East Technical University, revised Feb 2017.
    10. Erol H. Cakmak & Hasan Dudu, 2014. "Economic Growth in the Euro-Med Area through Trade Integration: Focus on Agriculture and Food The case of Turkey," JRC Research Reports JRC84201, Joint Research Centre.
    11. JACKSON Karen, 2010. "Trade Preferences in Manufactures. The Case of the Turkey–EU Customs Union," EcoMod2003 330700072, EcoMod.

    More about this item

    Keywords

    Customs Union; Income distribution; Employment; AGE analysis; Turkey;
    All these keywords.

    JEL classification:

    • D58 - Microeconomics - - General Equilibrium and Disequilibrium - - - Computable and Other Applied General Equilibrium Models
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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