The Effects of EU Customs Union Integration on Turkish Intra-industry Trade

Abstract

EU is the major trade partner of Turkey with a significant share in total trade flows. Since Turkey switched from import substitution strategy to export-led growth strategy in 1980, import restrictions were eliminated. In January 1996, Customs Union (CU) with EU countries was put into force, which is a turning point in Turkey's foreign trade and is a considerable attempt towards trade liberalization. It is generally expected that intra-industry trade (IIT) is greater in the countries that experienced an economic integration. In this paper, the relation between the integration process and the intensity of IIT between Turkey and EU countries will be examined by comparing before-and-after periods of Turkey's CU membership. All calculations are made for the manufacturing sector by using Turkish bilateral trade data for 1990-2009 period and 2-digit ISIC Rev. 3 data.