THE EFFECTS OF CUSTOM UNİON ON THE INTRA INDUSTRY TRADE BETWEEN TURKEY AND THE EU-15: THE CASE OF MANUFACTURING INDUSTRY

Abstract

In today's economies, international trade patterns have changed with the inclusion of non-homogeneous differentiated goods in trade, and the realization of trade has changed the traditional trade patterns even among countries with similar factor endowments, technology and development levels. Most of the growth observed in trade in the years after World War II occurred in relatively similar goods (in manufacturing) among relatively similar countries (developed countries). In this way, the exports and imports (bilateral trade) of similar goods belonging to the same industry is called intra industry trade (IIT). The main purpose of the customs union is to increase foreign trade among the union members and to have a sustainable foreign trade. Turkey entered into a customs union with the European Union (EU) on 1 January 1996 in order to increase foreign trade with EU. The purpose of this study is to analyze the effect of customs union on IIT between Turkey and EU-15. In this study, the IIT values for the manufacturing sector between Turkey and the EU-15 for the period before the customs union (1980-1995) and for the period after the customs union (1996- 2018) were calculated by the Standard Grubel-Lloyd (G-L) index. The G-L index indicated that the IIT value,which was 0.72 before the customs union, increased to 0.84 after the customs union. Thus, ITT increased between Turkey and EU as a result of the customs union.