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Costs of a missing FTA: the case of Turkey and Algeria

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Abstract

Turkey has been deeply integrated with the EU, its largest trading partner, particularly following the Customs Union agreement in 1996. However, the free trade agreements (FTAs) signed by the EU with third party countries may create some unfair competitive pressures, market share and welfare losses for Turkey. This study investigates the impact of the FTA signed by Algeria and the EU in 2005 on Turkey’s trade flows. Covering 181 countries, a difference-in-differences analysis embedded in an extended gravity framework is employed to quantify the trade effects of the EU-Algeria FTA for the period of 1996–2013. Our findings suggest that bilateral trade between Turkey and Algeria is affected adversely due to the FTA. The counterfactual analysis shows that Turkish exports and imports to/from Algeria could have been 12 and 17% higher, respectively, had there been no FTA between the EU and Algeria.

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Fig. 1

Source: EUROSTAT

Fig. 2

Source: IMF-DOTS

Fig. 3

Source: TURKSTAT

Fig. 4
Fig. 5

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Notes

  1. See Yalcin et al. (2016) for a detailed discussion of the potential impact of TTIP on Turkey.

  2. The legal basis of the customs union of Turkey with the EU committing both parties to the common external tariffs is defined under Decision No. 1/95 Of The EC-Turkey Association Council of 22 December 1995.

  3. The Customs Union Agreement covers all industrial goods but does not include agriculture (except processed agricultural products), services or public procurement.

  4. In 2006, “Friendship and Cooperation Agreement” was signed between Turkey and Algeria to serve as a foundation in bilateral relations. Turkey invited Algeria to engage in FTA negotiations. However, “The Report Algeria 2010” provides an interview with Turkish Minister of Economics and he suggests that Algeria awaits the completion of WTO membership process to start the negotiations with Turkey.

  5. Ulrika Lomas, Algeria Delays Implementation of FTA with EU, TaxNews, Sept. 4, 2012, http://www.bilaterals.org/?algeria-delays-implementation-of#sthash.0zUcmgKh.dpuf (Algerian trade minister Mustapha Benbada points out that “the existing association agreement with the EU cost Algeria USD 2.5 m in lost customs duties between 2005 and 2009, while investments from the EU have not been as strong as initially anticipated. At the same time, Algerian imports from the EU have increased dramatically”).

  6. http://unctad.org/en/Pages/DIAE/FDI%20Statistics/FDI-Statistics-Bilateral.aspx

  7. See Baier and Bergstrand (2002, 2004, 2007, 2009), Magee (2003), and Egger et al. (2008).

  8. See Togan (2000), Lejour and de Mooij (2005), Antonucci and Manzocchi (2006), Neyapti et al. (2007), Nowak-Lehmann et al. (2007), Adam and Moutos (2008).

  9. See Yalcin et al. (2016) for a broad discussion of the total effect (dect and indirect) of the potential third country FTAs of the EU on Turkish trade and welfare. Their results indicate that if there were FTAs between Turkey and the EU’s six new potential trade partners would result in a 2.13% and 200 USD rise in welfare and GDP per capita in Turkey, respectively.

  10. Anderson (1979), Bergstrand (1985, 1989), Deardorff (1998), Evenett and Keller (2002), Anderson and Van Wincoop (2003), Magee (2003) and Baier and Bergstrand (2007).

  11. The CEPII database can be accessed at www.cepii.fr/anglaisgraph/bdd/distances.htm.

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Authors and Affiliations

  1. Department of Economics, TED University, Ankara, Turkey

    N. Nergiz Dincer & Ayça Tekin-Koru

  2. The World Bank, Ankara, Turkey

    Pinar Yaşar

  3. Department of Economics, Hacettepe University, Ankara, Turkey

    Pinar Yaşar

  4. TED University Trade Research Center, Ankara, Turkey

    N. Nergiz Dincer & Ayça Tekin-Koru

  5. Economic Research Forum, Cairo, Egypt

    N. Nergiz Dincer

Authors
  1. N. Nergiz Dincer
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  2. Ayça Tekin-Koru
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  3. Pinar Yaşar
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Correspondence to Ayça Tekin-Koru.

Additional information

We wish to thank seminar participants in ERF Conference 2016 in Cairo and MEEA Conference 2016 in San Francisco for useful comments. The usual disclaimer applies.

The findings and conclusions in this paper are those of the authors and do not represent the views of the World Bank.

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Dincer, N.N., Tekin-Koru, A. & Yaşar, P. Costs of a missing FTA: the case of Turkey and Algeria. Empirica 45, 489–505 (2018). https://doi.org/10.1007/s10663-017-9369-3

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