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12th GTAP Conference, “Trade Integration and Sustainable Development: Looking for an Inclusive World”, Economic Commission for Latin America and the
Caribbean, Santiago, June 2009
Turkey and the EU: Economic Integration and Labour Migration
Scott McDonald
(Oxford Brooks University)&
Yontem Sonmez(Lancashire Business School, UCLAN)
&Karen Thierfelder
(US Naval Academy)
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Outline of the Presentation
Turkey – EU RelationsAimData & the Globe_Mig Global CGE Model Policy Experiments and Model ClosuresResultsConcluding comments
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• Global financial crisis: economies of almost all countries in Europe, in the US, etc affected
• No slow down in the pace of accession negotiations between the EU and the new candidate countries
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Turkey – EU Relations
• 1959: First application to join• 1963: Associate member• 1987: Applied for full membership• Part of common EU Customs Territory since
1996• 1999: Candidate country status• 2005: Membership negotiations started (Turkish
Undersecretariat for Foreign Trade, nd)
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%s of Total Imports and Exports by Regions
EU27 Exports Imports
Turkey 1% 1%
NAfrica 1% 1%
China 2% 3%
Russia 2% 3%
RoME 3% 2%
Japan 3% 3%
EFTA 3% 4%
Asia 5% 7%
RoW 5% 5%
NAFTA 13% 11%
IntraEU 58% 61%
Turkey Exports ImportsEFTA 1% 4%NewEU12 4% 4%RoW 4% 4%France 6% 5%UK 7% 6%RoME 7% 7%Asia 4% 8%Italy 7% 8%Russia 4% 10%NAFTA 13% 11%RoEU15 14% 14%Germany 15% 12%
EU27 53% 49%
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Number of skilled and unskilled Turkish labour in Europe
Skilled Labour Unskilled Labour
Germany 63,459 706,771
UK 10,380 18,806
Greece 6,623 32,139
France 5,675 92,035
Netherlands 4,100 88,377
Switzerland 2,631 31,571
Sweden 1,923 15,766
Austria 1,616 62,280
Belgium 1,198 34,424
Denmark 944 14,550Source: GMig2 Database, 2007.
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Remittances received by Turkey from EU countries, US$ billions
2001 Unskilled Labour Skilled Labour
UK 0.02 0.01
France 0.03 0.003
Germany 0.36 0.04
Italy 0.002 0.0004
Rest of EU15 0.12 0.01
New 12 EU countries 0.003 0.001
Source: GMig2 Database, 2007
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Aim
• To study the economic implications of a possible EU membership of Turkey
How?
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Policy Experiments
1. removal of bilateral import duties on all commodities traded between Turkey and EU27
2. removal of bilateral export taxes …..3. removal of both bilateral import and export
duties, i.e. FTA scenario4. FTA plus the imposition of EU’s CET by Turkey
on commodity trade with third countries, i.e. CU scenario
5. CU plus agricultural liberalisation6. CU plus agr. lib. plus endogenous migration
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Macro Economic Closure
• FEX -Flexible exchange rate
• Investment -Investment driven savings
• Government -Absorption share fixed -Value added tax flexible - fixed internal balance
• Numeraire -CPI
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Data
• Database: GTAP database version 6 & GMig2 data on the number of skilled and unskilled migrant workers & bilateral remittance flows
• Form of the Database: A SAM representation of the GTAP database (McDonald and Thierfelder, 2004) & Augmenting the GTAP database (McDonald and Sonmez, 2004).
• Aggregation: 23-sector, 5-factor and 17-region
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Globe_Mig Global CGE Model
• Model: GLOBE_Mig global CGE Model (McDonald and Thierfelder, 2009). ‘A Global CGE Model with Endogenous Labour Migration’
• Production:• 3 level CES
– Aggregate intermediaries, value added and labour• All factors potentially unemployed
– MCP formulation for regime switching
• Taxes– VAT on household demand
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RESULTS
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% Changes in Turkish GDP
base US$ bns FTA CU
CU&Agr lib
CU&Agr lib&mig
GDP Exp. 147 0.02 -0.03 -0.04 -0.05
Private cons. 99.50 0.01 -0.36 -0.48 -0.49
Govt cons. 21.09 0.11 0.12 0.35 0.34
Investment cons. 24.59 0.30 0.29 0.58 0.57
Export Supply 46.57 0.46 1.61 1.59 1.58
Import Demand 45.19 0.65 1.16 1.19 1.20
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CU & Agr lib & Migration Scenario• Due to the differences in relative wage rates, unskilled
and skilled Turkish labour move to EU27 subject to a migration elasticity
% Change in Turkish unskilled and skilled labour in EU27
Skilled L Unskilled LGermany 1.60 1.18France 1.59 1.22UK 1.58 1.23Italy 1.59 1.23Neu 1.54 1.19Reu 1.59 1.21
Remittances sent back to Turkey increase slightly
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FTA (%) CU (%)
CU & Agri Lib (%)
CU & Agri Lib & Migration (%)
Turkey 0.11 -0.27 -0.26 -0.27
Slutsky Approximation EV by Regions on Consumption, US$ billions
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Tax Replacement, %s
Tax Revenue Base US$ billions FTA CU CU&Agri
LibCU & Agri Lib
&Migration
Value Added 0 0.27 0.86 1.52 1.52
Sales 9.17 -0.25 -0.46 -0.95 -0.96
Factor Use 1.41 -0.04 -0.27 -42.22 -42.22
Import 0.92 -13.12 -84.36 -84.48 -84.48
Export 0.20 -52.73 -51.90 -52.15 -52.15
Household -15.40 0.01 -0.38 -0.52 -0.53
Factor Income 15.08 0.01 -0.38 -0.58 -0.58
Indirect 9.72 -0.09 -0.23 -0.65 -0.66
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Changes in Trade Shares with CU
UK
France
Germany
Italy
Reu
-3.50 -3.00 -2.50 -2.00 -1.50 -1.00 -0.50 0.00
-3.08%
-2.25%
-2.82%
-3.10%
-2.71%
% Changes in Turkish Imports from EU % Changes in Turkish Imports from ROW
China
Japan
Asia
NAFTA
Russia
N Africa
RoMidEast
Rest
-2.00 0.00 2.00 4.00 6.00 8.00 10.00 12.00
7.40%
1.18%
9.59%
0.72%
3.64%
0.22%
-0.48
0.72%
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Concluding Comments
• CU scenario has some important trade implications:
– EU’s share in total Turkish imports declines with the imposition of the CET as they are replaced by relatively cheaper imports from third countries.
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• Imposition of EU’s CET lowers import tariff rates imposed by Turkey on imports from third countries and causes changes in trade regime of Turkey by removing ‘trade diverting’ distortions
• The change in trade regime reduces the degree of distortion in Turkish markets
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• Endogenous migration scenario also has some important implications:– Migration of Turkish labour force from Turkey to
EU27 has mixed effects;– with a positive effect being generated by
increases in remittances and– a negative effect due to the reduction in the
supply of labour in Turkey, particularly the skilled labour, which is relatively scarce.