The effect of exchange rate changes in international competitiveness: Comparison of Turkey and China

Foreign trade balance deficit has become one of Turkey's chronic economic problems. In order to solve the deficit, many important steps have been taken with the export-based industrialization policy. In this process, creating added value, product development, technological innovations, sales, marketing, brand etc. Apart from structural implementations, non-permanent measures such as the depreciation of the Turkish Lira (TL) but increasing competition in the short term have also been applied. The sharp depreciation of the TL in recent years has inflamed the debate over whether the competitive exchange rate effect has emerged in exports. This situation has brought to the fore the thought that there may be similarities between China and Turkey, which kept the renminbi (RMB) value low and rapidly increased its export volume in international markets. In this study, the foreign trade of Turkey and China has been compared with two different analysis ways in order to examine these views. First of all, it was tried to measure the competitiveness of Turkey and China's exports of low, medium and high technology manufacturing industries. In the second stage, the effect of exchange rate, which is an important factor in foreign trade, was tried to be determined. In this context, the relationship between the real effective exchange rate, export and import volume of the countries has been tried to be calculated. In the first analysis method of the study, the Revealed Comparative Advantage (RCA) index measurement, which was put forward by Liesner (1958) and developed by Balassa (1965), between the years 1995-2019 of Turkey and China was made and the annual manufacturing industry competitiveness of the two countries was compared. In the second analysis, the cointegration relationship between the monthly real effective exchange rates, export and import values of Turkey and China in the 2014/1 – 2021/9 period is examined and it has been determined how much the real effective exchange rate and imports, which are independent variables, affect exports, which are held as dependent variables. In the study, firstly, the stationarity of the data in the relevant period was analyzed by ADF and Philips-Perron unit root tests. After ensuring the stationarity of the series, ARDL bounds test and Error Correction Model examined the existence of short- and long-term cointegration relationship between the variables. Finally, with the coefficients obtained from the model, the real effective exchange rate and the effect of imports on the exports of both countries were tried to be determined. The stability of the obtained coefficients was also analyzed with the help of CUSUM and CUSUM Square graphs.