The effects of Türkiye's Free Trade Agreements on its external trade: A causal inference approach

The study aims to estimate the impact of Türkiye's Free Trade Agreements (FTAs) on its external trade using three novel approaches: Fixed Effect Counterfactual Estimator (FEct), Interactive Fixed Effect Counterfactual Estimator (IFEct), and Matrix Completion (MC) method introduced by Liu et al (2022). The results show that while Türkiye's FTAs have positive effects on its exports to its FTA partners, we do not find a statistically significant impact on its average imports. Our results demonstrate that Türkiye's FTAs have increased its exports to these economies by 54.7% on average over five years after the FTAs entered into force. Additionally, the placebo test results suggest that the effects of these agreements on Türkiye's export may happen before they are actually put into effect. After determining the positive effects of FTAs on exports, we examine how extensive and intensive margins have contributed to the country's increased exports to these countries. Our findings demonstrate that while FTAs cause to increase the product and firm diversity in Türkiye's exports to its FTA partners, we do not find any effects of FTAs on the product and firm-level intensive margins. We also use the Synthetic Control Method (SCM) to extend the scope of our analysis at the country and industry levels. This allows us to look at the effects of FTAs with two chosen countries (Morocco and South Korea) on Türkiye's foreign trade at overall and industry levels. According to the findings, Türkiye's exports to Morocco and South Korea rose by 59.3% and 78.6%, respectively, as a result of the FTAs between Türkiye and Morocco (South Korea). We further show that if Türkiye had not established these FTAs, its imports from South Korea and Morocco may have been 18.8% and 19.2% less, respectively. The model's findings also indicate that some industries have benefited significantly from FTAs.