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Turkey's Recent Trade and Foreign Direct Investment Performance

Author

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  • Kamil Yilmaz

    () (Koc University)

  • Umit Izmen

Abstract

This paper analyzes the changes in the structure of trade as well as the developments in the capital account of Turkey since mid-1990s and discusses the possible composition of trade flows and Turkey’s attractiveness for international capital inflows in the near future. Analysis of the long-term performance of Turkish exports and imports reveals that the efforts to increase exports were successful only to a certain degree. The country’s large trade deficit with the rest of the world accumulates over time and frequently ends up with a crisis which automatically reduces the trade deficit by reducing the imports. Since 2001 the transformation of exports from the low-tech products to medium-tech and to a certain degree high-tech products has taken place. While this transformation helped bring the trade deficit with the EU down, it contributed to the widening of trade deficit vis-à-vis the Asian countries and oil exporters. The initiation of the EU accession talks in 2005 invigorated the expectations for a more rapid and consistent implementation of the rules and regulations that ensure a level playing field for all companies, domestic and foreign, alike. The EU accession process enabled Turkey to attract record levels of FDI inflows. Almost all of the FDI inflows over the last four years have been composed of mergers and acquisitions, and directed mostly to service sectors and the real estate. From a longer term growth perspective Turkey needs to attract greenfield investments, especially in the manufacturing industries. In order to put Turkey in international producers’ networks the current investment environment should further be improved by the implementation of long-delayed microeconomic structural reforms as well as judicial and legal reforms.

Suggested Citation

  • Kamil Yilmaz & Umit Izmen, 2009. "Turkey's Recent Trade and Foreign Direct Investment Performance," Koç University-TUSIAD Economic Research Forum Working Papers 0902, Koc University-TUSIAD Economic Research Forum.
  • Handle: RePEc:koc:wpaper:0902
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    File URL: http://eaf.ku.edu.tr/sites/eaf.ku.edu.tr/files/erf_wp_0902.pdf
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    References listed on IDEAS

    as
    1. Aysan, Ahmet Faruk & Hacihasanoglu, Yavuz Selim, 2007. "Investigation on the Determinants of Turkish Export-Boom in 2000s," MPRA Paper 5493, University Library of Munich, Germany.
    2. Erol Taymaz & Kamil Yılmaz, 2008. "Integration with the Global Economy: The Case of Turkish Automobile and Consumer Electronics Industries," Koç University-TUSIAD Economic Research Forum Working Papers 0801, Koc University-TUSIAD Economic Research Forum.
    3. Bernard M. Hoekman & Togan Sübidey, 2005. "Turkey : Economic Reform and Accession to the European Union," World Bank Publications, The World Bank, number 7494, November.
    4. 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, vol. 12, pages 157-179.
    5. Sule Ozler & Kamil Yilmaz, 2009. "Productivity response to reduction in trade barriers: evidence from Turkish manufacturing plants," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 145(2), pages 339-360, July.
    6. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, vol. 45(1), pages 115-135, June.
    7. Taymaz, Erol & Yilmaz, Kamil, 2006. "Productivity and Trade Orientation: Turkish Manufacturing Industry Before and After the Customs Union," MPRA Paper 58843, University Library of Munich, Germany, revised 2007.
    8. Gruben, William C. & McLeod, Darryl, 1998. "Capital Flows, Savings, and Growth in the 1990s," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 1), pages 287-301.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Kemal Türkcan, 2014. "Investigating the Role of Extensive Margin, Intensive Margin, Price and Quantity Components on Turkey’s Export Growth during 1998-2011," Working Papers 2014/2, Turkish Economic Association.
    2. Sübidey Togan, 2010. "Turkey: Trade Policy Review, 2007," The World Economy, Wiley Blackwell, vol. 33(11), pages 1339-1389, November.
    3. Mustafa METE, 2014. "The Factors Affecting Foreign Trade in Turkey and an Analysis," International Journal of Economics and Empirical Research (IJEER), The Economics and Social Development Organization (TESDO), vol. 2(8), pages 321-332, August.
    4. Mustafa ÇAKIR & Turgay GEÇER, 2015. "Assessing Recent Turkey’s Foreign Trade Performance," Turkish Economic Review, KSP Journals, vol. 2(4), pages 269-276, December.
    5. Yalta, A. Yasemin & Demir, Ishak, 2010. "The Extent of Trade Mis-Invoicing in Turkey: Did Post-1990 Policies Matter?," MPRA Paper 30186, University Library of Munich, Germany.
    6. Syeda Tamkeen Fatima, 2016. "Productivity spillovers from foreign direct investment: evidence from Turkish micro-level data," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 25(3), pages 291-324, June.
    7. Birgül Cambazoglu & Hacer Simay Karaalp, 2014. "Does foreign direct investment affect economic growth? The case of Turkey," International Journal of Social Economics, Emerald Group Publishing, vol. 41(6), pages 434-449, June.
    8. Burak Güris & Burcu Kiran, 2011. "Foreign Trade Deficit Sustainability of Turkey," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 1, pages 167-174.

    More about this item

    Keywords

    Turkey; European Union; Foreign Trade; Current Account; Capital Account;

    JEL classification:

    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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