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Turkish Delight for Some, Cold Turkey for Others?: The Effects of the EU-Turkey Customs Union

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  • Antonis Adam
  • Thomas Moutos

Abstract

Following Turkey’s application for EU membership in 1987, a Customs Union (CU) between Turkey and the EU, mainly covering trade in manufacturing goods and processed agricultural products, came into effect in 1995. In addition to a large agricultural sector, Turkey also specializes in the production and exportation of relatively low-price, low-quality varieties of manufactured products. We use a theoretical framework in order to demonstrate that these features of the Turkish economy imply asymmetric changes in the trade volumes of the incumbent countries of the EU as a result of the EU-Turkey CU. By examining disaggregated trade data we find that the technologically sophisticated EU countries (e.g., mainly the Northern European countries) are also least similar to Turkey in terms of their export structure, whereas the degree of export similarity between the less technologically sophisticated EU members and Turkey is high. Our econometric results indicate that, in contrast to the “Northern” group’s exports to other EU15 countries (which have remained intact), the Southern countries’s exports to the other EU15 countries have declined as a result of the EU-Turkey CU. Moreover, the extra penetration of the Turkish market by EU countries has not been more favourable to the Southern group. These findings also imply that technologically sophisticated countries may see no significant further benefits from Turkey’s full accession to the EU (whereas the migration and political influence related costs for these countries may be large).

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1550.

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Date of creation: 2005
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Handle: RePEc:ces:ceswps:_1550

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Keywords: European Union; Turkey; customs union; exports; gravity; differentiated products;

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References

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  1. Laszlo Matyas, 1997. "Proper Econometric Specification of the Gravity Model," The World Economy, Wiley Blackwell, Wiley Blackwell, vol. 20(3), pages 363-368, 05.
  2. J. Mercenier & Erinç Yeldan, 1996. "On Turkey's Trade Policy : Is A Customs Union with Europe Enough?," Departmental Working Papers, Bilkent University, Department of Economics 964, Bilkent University, Department of Economics.
  3. Togan, Sübidey, 1997. "Opening up the Turkish Economy in the Context of the Customs Union with EU," Journal of Economic Integration, Center for Economic Integration, Sejong University, Center for Economic Integration, Sejong University, vol. 12, pages 157-179.
  4. Arvind Panagariya, 2000. "Preferential Trade Liberalization: The Traditional Theory and New Developments," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 38(2), pages 287-331, June.
  5. Harry Flam, 2003. "Turkey and the EU: Politics and Economics of Accession," CESifo Working Paper Series 893, CESifo Group Munich.
  6. Arjan M. Lejour & Ruud A. Mooij, 2005. "Turkish Delight: Does Turkey's Accession to the EU Bring Economic Benefits?," Kyklos, Wiley Blackwell, Wiley Blackwell, vol. 58(1), pages 87-120, 02.
  7. Baltagi, Badi H. & Egger, Peter & Pfaffermayr, Michael, 2003. "A generalized design for bilateral trade flow models," Economics Letters, Elsevier, Elsevier, vol. 80(3), pages 391-397, September.
  8. Finger, J M & Kreinin, M E, 1979. "A Measure of 'Export Similarity' and Its Possible Uses," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 89(356), pages 905-12, December.
  9. Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 1997. "Economic implications for Turkey of a Customs Union with the European Union," European Economic Review, Elsevier, Elsevier, vol. 41(3-5), pages 861-870, April.
  10. Antonis Adam & James McHugh & Theodora Kosma, 2003. "Trade Liberalization Strategies," IMF Working Papers, International Monetary Fund 03/239, International Monetary Fund.
  11. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
  12. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, American Economic Association, vol. 77(5), pages 810-22, December.
  13. Antonis Adam & Thomas Moutos, 2002. "The Political Economy of EU Enlargement: Or, Why Japan is not a Candidate Country?," CESifo Working Paper Series 704, CESifo Group Munich.
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Cited by:
  1. Konrad, Kai A & Skaperdas, Stergios, 1999. "The Market for Protection and the Origin of the State," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2173, C.E.P.R. Discussion Papers.
  2. Kamil Yılmaz & Şule Özler & Erol Taymaz, 2007. "History Matters for the Export Decision: Plant Level Evidence from Turkish Manufacturing Industry," Koç University-TUSIAD Economic Research Forum Working Papers, Koc University-TUSIAD Economic Research Forum 0706, Koc University-TUSIAD Economic Research Forum.
  3. Ahmet Faruk Aysan & Yavuz Selim Hacihasanoglu, 2007. "Investigation on the Determinants of Turkish Export-Boom in 2000s," Working Papers, Bogazici University, Department of Economics 2007/19, Bogazici University, Department of Economics.

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