Economic Feasibility of Turkey's Economic Integration with the EU: Perspectives from Trade Creation and Trade Diversion

Abstract

Main aim of this paper is to measure the feasibility of Turkey's integration with the EU from an economic point of view. For this purpose, we decompose the effect of economic integration into trade creation (TC) and trade diversion (TD) by using the well-known revealed comparative advantage (RCA) index. The RCA index has also been used to analyze the impacts of Turkeys' accession into the European markets with Customs Union Agreement on Mediterranean countries' (namely Greece, Portugal and Spain) trade. Diversity in the RCA indices among member countries and Turkey should be closely related to the magnitude of TC. On the other hand, TD occurs in the case of a union in goods in which the outside region as a whole has a comparative advantage. The results show that the export structures differ significantly between Turkey and the EU. Based on the RCA index, we would expect an intra-regional trade creation effect in the case of commodity groups' agriculture, food, beverages and tobacco, textiles, paper products, chemicals, non-metals, basic metals and metal manufacture. The results also suggest that the Mediterranean countries trade with the EU might be jeopardized as a result of Turkey's accession into the European markets without trade barriers.

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