Impact of Exchange Rate and Customs Union on Trade Balance at Commodity Level of Turkey With Eu (15)

Mehmet Yazici and M. Qamarul Islam

Economic Research-Ekonomska Istraživanja, 2011, vol. 24, issue 3, 75-85

Abstract: This paper investigates the short-run and long-run impact of exchange rate and customs union on the trade balance at commodity-group level of Turkey with EU (15). Bounds testing approach is employed where a new strategy in the model selection phase is adopted ensuring that optimal model is selected from those models satisfying both diagnostics and cointegration. Results indicate that in the short-run exchange rate matters in determination of trade balance of 13 commodity groups out of 21 and customs union in 8 cases. Pattern of response of trade balance to exchange rate does not suggest a J-curve effect in any of cases. As for the long-run effect, neither exchange rate nor customs union has a statistically significant effect on trade balance of any of commodity groups, suggesting that those significant short-run effects don’t last into long-run.

Date: 2011
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DOI: 10.1080/1331677X.2011.11517468

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