Effects of the customs union with the European Union on the market structure and pricing behaviour of the Turkish manufacturing industry

Abstract

Turkey established a Customs Union with the European Union in 1996. This study aims to analyse the effect of that Customs Union on the market structure and the pricing behaviour of the Turkish manufacturing industry for the period 1994 to 2000. To that end, the price cost mark-up equation of 12 manufacturing industry sectors is estimated using the import and export ratios with European Union countries together with control variables. A second equation is also estimated for the concentration ratio index, taking the trade ratios with European Union countries as explanatory variables. The estimation method is panel data covering eight years and 12 cross-section units. Estimation outcomes indicate that the export and import ratios of trade with European Union countries have a negative relation with the price cost mark-up in the manufacturing sector. It is concluded that increased imports with union countries have created a positive wealth and efficiency effect upon the Turkish manufacturing industry, due to falling price cost mark-ups. Similarly, the concentration ratio equation estimation outcomes indicate that increased imports with union countries have induced a decline in the concentration ratio for the manufacturing industry during the period in question.

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