Effects of the customs union on the patterns of Turkey's trade with the world : a panel analysis

In this thesis, the effects of the Customs Union with the EU are analyzed for the case of Turkey, using unbalanced panel data sets consisting of more than 150 countries between 1980-2001. Liberalization of Turkish foreign trade has gained an irrevocable momentum with the realization of substantial adjustments to the Common Custom Tariff System with the European Union (EU). On 6 March 1995, the European Union and Turkey signed agreement on Customs Union (CU). Turkey’s tariffs and levies on imports of manufactured products from the European Union were eliminated by this agreement. Our empirical analysis involves estimating the effects on exports and imports of Turkey of the Customs Union Agreement (CUA), of changes in price, and income, and of economic crises, controlling for additional institutional variables. Our results indicate that the CUA has not only positively impacted on Turkey’s trade, but has also led to changes in the behavior of both exports and imports with regards to their responsiveness to underlying variables. We observe that the income elasticity of both exports and imports are generally lower for the CU period, the effect of the real exchange rate (RER) on Turkey’s exports is stronger for the EU countries after CU. However, real exchange rate changes cease to have a significant impact on imports after the CUA.