erc/metu
INTERNATIONAL CONFERENCE IN ECONOMICS  IV
September 13-16, 2000, Ankara

Turkey’s Trade with the EU in the 1990´s: Structural Adjustment Hypothesis and Specialization

Astrid Marina Lohrman (University of Wuppertal, Germany)

Abstract

The European Union is Turkey´s largest trading partner. This was considerably fostered by the Association Agreement and the implementation of the Customs Union in 1996. Especially in the early 1990s Turkey has made substantial efforts to liberalize and to complete the Customs Union in time. A trade liberalization always causes adjustment costs. But it İstanbul Üniversitesi implicitly assumed that these costs are less important and make the adjustment "smooth" when the trade structure is intra-industrial rather then inter-industrial. The "Smooth Adjustment Hypothesis" predicts that the factor reallocation within an industry is considerable easier and less costly than between two different industries. So trade liberalization between countries with a high share of intra-industry trade is regarded as less problematic. Some economists (e.g. Hamilton and Kniest (1991), Greenaway, Hine and Milner (1994) and Brülhart (1994)) point out that the standard Grubel-Lloyd measure (GLM) is static and therefore a misleading indicator for adjustment, which is a dynamic process. In order to improve the measurement, a concept of dynamic "Marginal Intra-Industry Trade" (MIIT) was developed. This method includes changes in trade flows and allows statements about the moving of an economy "in to" or "out of" a sector. In the paper the trade structure between Turkey and the EU is analyzed by comparing traditional static GLM and dynamic MIIT in the 1990s and Turkey´s horizontal and vertical specialization in intra-industry trade with the EU.

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