Environmental impact of customs union agreement with EU on Turkey's trade in manufacturing industry

Abstract

In this study, we analyse Turkey's manufacturing industry trade by estimating sectoral import and export demand equations for 1980–2000. The study aims to understand whether the trade in the manufacturing industry complies with pollution haven hypothesis, and whether the free trade environment provided by the customs union (CU) agreement altered the trade pattern of the clean and dirty industries. Results of our econometric models have shown that while CU positively affects the import demand, it does not have any significant impact on the export demand of Turkish manufacturing industry. In terms of the environmental impact, distinction between clean and dirty industries turns out to be significant for both import and export demand. In general, our findings suggest that both clean and dirty industries’ import demand increased during the study period. In terms of export demand, clean industries’ export demand declines whereas dirty industries’ export demand increases compared to the total demand.