Effects of Foreign Direct Investment on Turkey-Eu28 Intra-Industry Trade

Abstract

This study aims to examine the distribution, progress and determinants of total (IIT), horizontal (HIIT) and vertical intra-industry trade (VIIT) between Turkey and EU28 and impact of foreign direct investment on IIT in 2005-2016 period. According to empirical findings, although the share of IIT in Turkey's trade shows an increase, trade structure is mainly inter-industry. Results show that, there is a transition from one way trade intensive structure to a structure that low quality VIIT gains importance. When, Turkey's total IIT with EU28 is compared with the World and non-EU28 economies, it is seen that one-way trade and low quality VIIT is higher; high quality VIIT and HIIT are at lower levels. In the model, it is confirmed that, IIT is in a positive relationship with market size, commerical proximity, trade openness and in a negative relationship with level of economic development. Foreign direct investment affects the low quality VIIT negatively and high quality VIIT positively; in other IIT models there is no significant statistical effect.