A Policy Dilemma in the Context of Turkey's Sectoral Export Competitiveness: The Role of Exchange Rates and Labour Costs

Production in Turkey has a high dependence on imported inputs. Therefore, the policy aiming at increasing exports through the depreciated national currency leads to different results depending on the degree of dependence on imported inputs. In this context, this study econometrically analyses increases in exports of manufacturing and service industries which have different levels of imported input dependence. The analysis findings indicate that national currency depreciation leads to competitive effects in the manufacturing industry, but not in the service sector. The effect of labour costs, on the other hand, is much lower in the manufacturing industry than in services. In addition, we found that the unit value index of crude material imports has a significant negative impact on the sectoral competitiveness of the manufacturing industry. In contrast, changes in import prices seem to have no significant impact on service exports.