Estimating Income and Price Elasticity of Turkish Exports with Heterogeneous Panel Time-Series Methods

In this paper, we employ panel time-series methods Dynamic OLS, Mean Group and Common Correlated Effects Mean Group to estimate the long-run price and income elasticities of Turkish exports to country groups categorized by geographical regions (EU27, other European countries, Asia, Middle East and North Africa (MENA)) and development levels (developed and developing). In doing so, we use bilateral trade data of Turkey with 67 countries over the period 2005Q1-2013Q4. We find that price and income elasticities vary across country groups. Income elasticity estimates are statistically significant in every country group classification and range between 1.82 and 3.35. Exports to the EU27, other European and the developed countries have higher income responsiveness. On the other hand, price elasticity ranges between -1.56 and -0.27 and is found statistically significant only in exports to the EU27, the MENA and the developing countries. Empirical results imply that region-specific measures have to be taken in trade policy design. In addition, policies based on real exchange rate depreciation would have fewer roles in boosting exports, whereas sustainable growth in trading partners is a more crucial factor to achieve sustainable growth in Turkish exports.