Ex-post assessment of heterogenous effects of trade agreements: the case of Turkey

Abstract

Purpose -Free trade agreements (FTA) are prominent features of international trade. The proliferation of FTAs over the past 20 years is one of the most prominent aspects of the global economy. Turkey has also signed many FTAs in this period on the basis of obligations stemming from customs union with European Union. FTAs aim to increase trade flows and welfare through liberalizing trade and achieving a deeper integration between partners. In this respect, FTAs are getting more and more important as international trade is a crucial tool to boost the economic development. Indeed, getting the utmost benefit from FTAs is very important for Turkey and other developing countries. Regarding the increasing importance of FTAs, the ex-post effects of FTAs on Turkey’s trade are examined in this paper. Methodology -In the light of recent techniques, structural gravity model is used in this study. Trade data used consists of aggregate trade flows among pairs of 90 countries from 1988-2016, 29 years in total. As the estimation technique, Ppml_panel_sg command is used. This is an estimation command for Poisson pseudo-maximum-likelihood (PPML) regression for panel gravity models with time varying importer and exporter fixed effects and time invariant pair fixed effects. Findings-The results indicate the econometric evidence of the impact of FTAs on Turkey’s trade. When all FTAs are considered at macro level, the results suggest that, FTAs had a statistically significant positive effect on exports and imports of Turkey. However, at micro level, there is substantial variation and heterogeneity in the agreement specific effects and trade direction specific effects within the agreement. Conclusion-This paper provides the first evidence that the impact of FTAs are heterogenous and not all the FTAs affected the trade of Turkey in the same positive way. Even within the same agreement, the effects vary considerably depending on the direction of trade.