A microeconometric study of Turkish trade policy: Market power, productivity and international competitiveness

This dissertation develops several empirical models based on recent developments in international trade theory that have emphasized the role of scale economies and imperfect competition as a basis for trade among nations. To evaluate the implications of imperfect competition and scale economies for the performance of Turkish manufacturing, this dissertation develops four models for estimating market power and productivity. These models are used to investigate the impact of trade reform on economic performance in Turkish manufacturing over the period 1983 to 1990 using KLEM panel data on 72 manufacturing sectors with ownership detail. Consideration of imperfect competition and scale economies is especially important for a developing country such as Turkey. Turkish manufacturing is characterized by small domestic markets and the historically important institutional role reflected in public enterprises. These features of Turkish manufacturing are clearly inconsistent with perfect competition. Furthermore, with the small size of the domestic market the only way to exploit economies of scale is to access foreign markets through international trade. Analyzing such complex phenomena requires a variety of strategies that motivate the models used in this dissertation. The models range from simple data-based models to advanced econometric specifications of Turkish manufacturing in an open economy under imperfect competition. The advanced model used in this dissertation is especially important because it brings together recent developments in international trade theory and industrial organization using a theoretically consistent model of firm behavior that consist of a multi-product cost function, and supply response functions and demand equations. International trade is consistently incorporated into the behavioral equations. Estimates of market power and productivity derived from the range of models estimated in this dissertation are examined for public and private enterprises using structural and trade policy variables in a conventional response surface analysis. This dissertation finds that there are important differences between public and private enterprises. It seems that, on average, market power among private enterprises is greater than among public enterprises. We also find that some indication of productivity decline in both types of enterprises over the period under study. Imports as a market discipline hypothesis seems to be supported in public enterprises, while exports are associated with increases in market power. Finally, imports do not appear to be important in explaining public or private sector productivity, though exports are associated with productivity increases in both types of enterprises.