The Role of Economic Size and Distance in Turkey's Exports

The high trade deficit stands out as one of the important problems of Turkey. Especially during the boom periods, trade deficit increases immensely and restricts the growth potential of the Turkish economy. Although a large share of the trade deficit is caused by energy related imports, still Turkey’s exports have to cover its imports in order to prevent the current account deficit from reaching unsustainable levels. In this research brief, we analyze Turkey’s export potential to its trading partners’ with respect to economic size and distance during two time periods; before and after the global crisis. Our analysis show that Turkey’s exports to Japan, India, some North and East European countries as well as Greece are way below its potential. On the other hand, Turkey’s exports to countries with which Turkey has a high trade deficit, such as Russia, China, US and Germany, are above its potential. Without any structural changes in the economy, exports to countries with a potential gap may be increased, but Turkey’s export potential in new markets is smaller than anticipated. For a sizable increase in exports, Turkey needs to implement structural reforms that will strengthen its competitiveness and enhance the variety of its exports, without delay.