Importance of Firm Heterogeneity for Exports Policy Design in Turkey: Implications for 500 Billion $ Exports Target for 2023

The main objective of this paper is to present how firm heterogeneity influenced Turkey's exports during 2003-2012 and why Turkey's exports would be better off if Turkey's exports policies took into account the differences in structure of its exporters. Using firm-product-country level data, this study suggests a new approach to decompose exports, which can be considered as an extension of Amurgo-Pacheco and Pierola (2008), focusing on the "decomposition of exports in each year", rather than the common approach that focuses on the "decomposition of growth of exports" as suggested by Eaton et al (2007). In addition, a number of definitions such as "Exporters Portfolio of a Country", "Product and Market Portfolios of a Firm", "N-Year Survivors" and "Last-Time Exporters" are introduced. Using these definitions, this study offers its own perspective for product and market diversification, survival rate of exporters, firm entries and exits, as well as extensive and intensive margins of exports; while providing results that take into account the heterogeneous structure of the exporters. According to the results, between 2003 and 2012, 140,678 different firms exported from Turkey. Each year, on average, 97% of the exporters were SMEs, while micro-sized exporters constituted 53% of total exporters. Although an average Turkish exporter exported 10.9 products to 4.4 markets in 2012, an average micro-sized exporter exported 9 products to 2.9 markets, while an average large-sized exporter exported 28.5 products to 15.8 markets. Almost all of the new exporters and last-time exporters were small-sized or micro-sized firms, while contribution of new firms to Turkey's exports was only around 3.8% each year. 81% of Turkey's exports in each year were a result of exports in intensive margin, while 12.5% were a result of market diversification and 8% were thanks to product diversification. 80% of market diversification and 88% of product diversification in each year were realized by SMEs, while average market and product portfolios of an average SME were significantly smaller than an average large-sized exporter. In addition, there were 8789 10-year survivors that constituted almost 67% of Turkey's exports in each year, while having significantly larger market and product portfolios compared to an average exporter, performing better with respect to all of the metrics. Despite the heterogeneous structure of Turkey's exporters, Turkey's exports policies have a uniform structure. Therefore, there is a significant opportunity for increasing efficiency of Turkey's exports policies taking into account this phenomenon. . .