Original scientific paper
IMPACT OF EXCHANGE RATE AND CUSTOMS UNION ON TRADE BALANCE AT COMMODITY LEVEL OF TURKEY WITH EU (15)
Mehmet Yazici
M. Qamarul Islam
Abstract
This paper investigates the short-run and long-run impact of exchange rate and customs union on the trade balance at commodity-group level of Turkey with EU (15). Bounds testing approach is employed where a new strategy in the model selection phase is adopted ensuring that optimal model is selected from those models satisfying both diagnostics and cointegration. Results indicate that in the short-run exchange rate matters in determination of trade balance of 13 commodity groups out of 21 and customs union in 8 cases. Pattern of response of trade balance to exchange rate does not suggest a J-curve effect in any of cases. As for the long-run effect, neither exchange rate nor customs union has a statistically significant effect on trade balance of any of commodity groups, suggesting that those significant short-run effects don’t last into long-run.
Keywords
J-curve; Customs Union; Bounds Testing Approach; Exchange Rate; Trade Balance
Hrčak ID:
77586
URI
Publication date:
1.9.2011.
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