Free trade agreements and intra-industry trade: An analysis of Turkey

Traditional trade theories, based on differences in the countries', are inadequate in explaining contemporary trade flows with a complex structure between countries. This situation has led to the development of new trade theories. The increase of both economic global interdependence and similarities of countries give rise to the concept of intra-industry trade (IIT). The new trade theories are developed by Krugman (1979, 1980), Lancaster (1980) and Helpman (1981) explained IIT by imperfect competition, economies of scale and product differentiation. IIT is defined as the simultaneous export and import of similar products. Similarity is identified here by the goods or services being classified in the same statistical product category. In this dissertation, firstly the concept, evolution and impacts of free trade agreements are examined and then, the definition, initial findings, theoretical approaches and measuring methods of IIT are explained. The analytic part of the dissertation sets out to investigate the role and determinants of Turkey IIT in the framework of free trade agreements for manufacturing industries between the years 1990-2012. The model is estimated using a panel approach for the period 1993-2012. The model demonstrates that Turkey's trade between trading partners form complemaentry rather than a competitive structure. Keywords: Free Trade Agreements, Intra-industry Trade, Grubel-Lloyd Index, Vertical, Horizontal, Marginal Intra-industry Trade