Economic impact of foreign trade of Turkey with members of Shanghai Economic Cooperation Organization: Gravity model analysis

In this study, the determinants of the trade volume between Shanghai Cooperation Organization (Russia, China, Kazakhstan, Kyrgyzstan, Uzbekistan, Tajikistan, India, Pakistan) members and Turkey as a dialogue partner have been aimed to be analyzed with traditional and generalized Gravity Models with panel regressions for the period of 2002-2017. In this context, in addition to the traditional usage of the size indicator, the Gross Domestic Product (GDP) and per capita GDP, in explaining the trade volume, the trade freedom index, the political stability and the real exchange rate variables and their effects are also included in the generalized Gravity Model as proxies of the distance concept in the model. For testing the effects of dialogue partnership of Turkey's Shanghai Cooperation Organization (SCO), in regard to the period before and after SCO, the changes are intended to be included in the model with dummy variables. The findings of the work indicate that the negative effects of the 2009 crisis have not been rejected in addition to the positive effects of the national income increases on the trade volume in the related countries in the context of the traditional Gravity Model. The findings of the Generalized Gravity Model estimated for the SCO member and dialogue partners are as follows: i. the positive effects of increases in the political stability of trade partners on trade volume cannot be rejected, ii. the positive effect of trade freedom as a measure of trade protectionism on trade volume cannot be rejected, suggesting the negative impact of protectionism, iii. the negative effect of increases in real exchange rate on trade volume, and lastly iv. in the context of the SCO dummy variable and its interactions with the above mentioned variables, the changes between the effects of the variables before and after dialogue with SCO on the trade volume were considered as statistically significant. In this context, it can be concluded that the possible SCO membership and the dialogue partnership have significant impacts on the trade volume and it is important to enhance the trade policies directed towards improving the positive effects even further on trade volume in the future between Turkey and the SCO countries.