Free trade in Euro-Mediterranean agriculture :an economic perspective of Turkey

Abstract

It is a standard result of economic theory that free trade maximises global efficiency in a distortion-free world. Over the last two decades countries have made great efforts to liberalise their trade in order to facilitate economic growth through integration in the global economy. Turkey is one of these countries whose international trade plays a significant role in her economic development.

Over time, trade increasingly links countries in the Mediterranean region and the trade policy debate is dominated by the regional trade negotiations between the European Union and the ‘Mediterranean Partner Countries’ (MPCs), known as the Union for the Mediterranean. Agriculture is a crucial sector in this region. Unlike manufactured goods, agricultural products have often been only partially integrated into regional trade agreements, due to the high level of protection afforded to them. Agriculture in Turkey holds the promise of making a major contribution to Turkish economic development, with the agricultural trade balance being significantly positive. Turkey is a large and important country in the region and a potential full member of the European Union.

This research explores the determining factors of Turkish agricultural export flows to the Euro-Mediterranean countries. The thesis employs the most recent econometric methods in estimating a gravity model and the analysis uses panel data covering the period 1969-2010 for 30 Euro-Mediterranean countries. In addition to performing traditional linear methods, panel unit root and cointegration tests are conducted to examine the likely long run relationship between determining factors and agricultural export flows.

The results demonstrate that, as expected, Turkish agricultural exports are positively influenced by economic size and negatively affected by geographical distance. The results also indicate that Turkish agricultural exports to the Euro-Mediterranean countries are positively associated with being a member of a free trade agreement, although this is statistically insignificant. The main inference of the findings is that they do not support the notion that free trade agreements between Turkey and the Euro- Mediterranean countries boost the agricultural exports of Turkey. Comparing the results between the standard panel data estimator and panel cointegration estimators show that there is little difference between them.