The impact of free zones on foreign trade: An empirical application on Turkey

The countries which try to increase their share of the global trade market have always been in search to find their ways around trade restrictions and cautions and developed free trade zones as a modern solution to these restrictions. Free trade zones are special realms which are free from the quotas and restrictions on foreign trade that states apply as well as being beneficial to domestic producers. Free trade zones can help countries to have the edge over in global trade with advantages they provide. The most important advantage of free trade zones is the tax reductions. Tax reductions reduces the cost of production which results in cheaper prices and price advantage, thus improving the ability to compete in foreign market. In this study, impacts of free trade zones on foreign trade will be empirically examined. In the empiric part of the study an econometric method called ARDL is used. Four different models have set up and considering the fact that the foreign trade of Turkey not only affected by free trade zones, variables like exchange rate, import and export unit rates, revenue of the global world and Turkey, etc., have also been taken into consideration. Result of analysis demonstrates a cointegration between the foreign trade of Turkey and free trade zones as well as the other variables that mentioned before.