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GTAP Resource #6294

"Analyzing the effects of free trade agreements in a Melitz-CGE model: Evidence from Turkey-UK FTA"
by Akgul, Zeynep

The UK has recently reached a post-Brexit trade agreement with the EU. The first free trade agreement (FTA) signed by the UK following this deal is with Turkey. Turkey and the UK inked a historic free trade deal that takes effect on January 1st, 2021. It is considered as the most significant trade pact for Turkey since the signing of a customs union agreement with the EU in 1995. In fact, without the FTA, 75% of Turkish exports to the UK would have been subject to tariffs, which would have caused a loss of approximately $2.4 billion to Turkey. In 2019, Turkey’s exports to the UK is reported to be $11.3 billion, while imports total $5.6 billion. The UK is among the leading markets for many Turkish sectors, especially the automative sector, which accounts for 16% of the total trade volume between the UK and Turkey. The newly signed FTA is considered to protect the supply chain of Turkey-UK in the automotive industry and is expected to lead to more ambitious agreements between the two countries in the long-run.

This paper investigates the effects of Turkey-UK FTA on the automotive sector using GTAP-HET (the firm heterogeneity model of GTAP) developed by Akgul et al. (2016). The classic GTAP model (Hertel, 1997) is extended in the GTAP-HET model to incorporate monopolistic competition and heterogeneous firms. Using GTAP-HET allows us to account for extensive margin effects prevalent in the automotive sector and to trace out self-selection of firms into domestic and export markets based on productivity differences across firms. Additionally, the GTAP-HET model incorporates consumer love-of-variety, fixed costs in domestic and export markets, and captures trade growth along the extensive margin. These mechanisms can lead trade policies to have significant welfare effects through new channels such as competition, productivity, scale, and overall variety.

Resource Details (Export Citation) GTAP Keywords
Category: 2021 Conference Paper
Status: Not published
By/In: Presented during the 24th Annual Conference on Global Economic Analysis (Virtual Conference)
Date: 2021
Created: Akgul, Z. (4/15/2021)
Updated: Akgul, Z. (6/24/2021)
Visits: 1,062
- Preferential trading arrangements
- Europe (Western)

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