Economic integration and intra-industry trade betweens Turkey and European Union

ABSTRACT ECONOMIC INTEGRATION AND INTRA-INDUSTRY TRADE: TEST OF INTRA-INDUSTRY TRADE BETWEENS TURKEY AND EUROPEAN UNION Yelda Bugay TEKGUL Ph.D.thesis, Economics Department Supervisor: Prof.Dr.Nejat ERK May 2000, 148 pages Since the mid 1960s research on intra-industry trade, or the simultaneous export and import of similar products has grown to an impressive degree. On the other hand, the interest in the effects of product differentiation, economies of scale, and monopolistic competition on international trade has existed for many years. Nevertheless, traditional theories of international trade have not been extended to intercorporate these elements. Intra-industry trade concept can be explained by economies of scale and product differentiation which are all features of imperfect comppetition. Within this study, we focus the effect of the economic integration on intra- industry trade. There would appear to be a causal association between economic integration and intra-industry trade. In our study we will focus on the tendency of trade among countries pre and post integration. The teoretical analysis shows that economic integration leads to a large increase in intra-industry trade. We used an unadjusted version of Grubel and Lloyd's index in order to compute the share of intra-industry trade between Turkey and EU countries. Results show that, after the Custom Union intra-industry trade between Turkey and EU countries is increased. Greece have the highest level of intra-industry trade with Turkey and in turn in order Portugal, Italy, spain, United Kingdom. In 1998, trade type among Turkey and EU countries can be defined as two-way trade in vertically differentiated products. Key Words: Intra-industry Trade; Economic Integration; Vertical product differentiation; Horizontal product differentiation; Grubel-Lloyd index