A Tale of (Almost) 1001 Coefficients: Deep and Heterogeneous Effects of the Eu-Turkey Customs Union

41 Pages Posted: 21 Feb 2019

See all articles by Mario Larch

Mario Larch

University of Bayreuth - Faculty of Law, Business and Economics; University of Bayreuth; CESifo; Ifo Institute for Economic Research; GEP at the University of Nottingham; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Aiko F. Schmeißer

University of Goettingen (Gottingen)

Joschka Wanner

University of Bayreuth

Date Written: 2019

Abstract

In view of the deferred start of negotiations for the modernization of the Customs Union between the EU and Turkey (CU-EUT), we look back and analyse the ex post trade consequences of the CU-EUT. Employing up-to-date econometric best practices for regional integration agreements, we quantify both total and heterogeneous trade effects of the CU-EUT. In contrast to most previous studies, our results indicate a significantly positive, large, and robust impact of the CU-EUT, implying an additional increase in EU-Turkey manufacturing trade by 55-65% compared to the previously active Ankara Agreement. We also provide evidence that the CU-EUT significantly increased Turkey’s trade with third countries. Additionally, a substantial heterogeneity in the CUEUT effect is found across different industries as well as for each of its member countries and the direction of trade. We link the heterogeneity of our up to 911 coefficient estimates to differences in initial trade costs and show that it cannot be ascribed to reductions in bilateral tariff rates.

Keywords: gravity model, European integration, country-specific effects

JEL Classification: F140, F150

Suggested Citation

Larch, Mario and Schmeißer, Aiko F. and Wanner, Joschka, A Tale of (Almost) 1001 Coefficients: Deep and Heterogeneous Effects of the Eu-Turkey Customs Union (2019). CESifo Working Paper No. 7498. Available at SSRN: https://ssrn.com/abstract=3338854

Mario Larch (Contact Author)

University of Bayreuth - Faculty of Law, Business and Economics ( email )

Universit├Ątsstra├če 30
Bayreuth, 95447
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0049 / (0) 921 - 55 6240 (Phone)

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

CESifo ( email )

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Ifo Institute for Economic Research ( email )

Poschinger Str. 5
Munich, 01069
Germany

GEP at the University of Nottingham ( email )

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United Kingdom

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

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Paris Cedex 15, F-75015
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Aiko F. Schmeißer

University of Goettingen (Gottingen) ( email )

Platz der Gottinger Sieben 3
Gottingen, D-37073
Germany

Joschka Wanner

University of Bayreuth ( email )

Universitatsstr 30
Bayreuth, D-95447
Germany

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