Customs union and the effects on Turkey economy

After 1950s, many countries, particularly industrialized countries entered into the process of economical integration and took their place in various organizations in order to adapt to the changes occuring in world trade and to benefit from the advantages of those changes. The most notable of these organizations has been European Union (EU) and Customs Union in particular. The Customs Union which is the most common form of integration in history refers to the removal of all kinds of tariffs anf quotas between the members and the adoption of a common external trade policy through applying a common tariff rate against the underdeveloped countries. Current study analyzes the effects of Customs Union (CU) on foreign trade volume between Turkey and EU for the period of 1982-2010. The main aim of the study is to demonstrate the trade creation and trade diversion effects of CU for Turkey. The export and import models determined for this purpose were estimated by different methods in the context of time series analysis. According to co-integration tests results, CU affects both export volume of Turkey to EU and import volume of Turkey from EU positively. Overall results show that CU induce a trade creation effect although this effect is limited. Besides, when Turkey's export market share after CU is examined, the decrease in the share of EU and the increase in Turkey's export to third countries indicate that trade diversion effects of CU do not exist for Turkey.