The Effect of the Customs Union Agreement on Turkey’s Foreign Trade: Panel Gravity Model Approach

This study investigates the impacts of the 1996 Customs Union (CU) on the Turkish trade flows to EU15 by employing a Panel Gravity Model for the period 1980-2009 using yearly data. Trade models are estimated by using income, population, the distance between countries and the CU Dummy as explanatory variables. The results show that while the CU has had a notable impact on Turkish imports, its impact on Turkish exports is insignificant. Furthermore, the study also examines the hypothesis that the CU has caused a structural change in the impacts of both Turkey’s and the partner countries’ incomes on import and export. The results shows that the export model showed a structural change for both parties, whereas the import model only showed an income effect for Turkey’s partner countries