Paper ID Number: 300

EY International Congress on Economics I

"EUROPE AND GLOBAL ECONOMIC REBALANCING"
Ankara, October 24-25, 2013

Gazi University Department of Economics

A Time Series Analysis of Turkish Trade Patterns at the

Sector Level

Erlat H.1
1

METU, Department of Economics, Ankara, Turkey

herlat@metu.edu.tr

Copyright 2013 by Haluk Erlat. All rights reserved. Readers may make verbatim copies of this document for noncommercial purposes by any means, provided that this copyright notice appears on all such copies.

EY International Congress on Economics I

"Europe and Global Economic Rebalancing
October 24-25, 2013, Ankara/Turkey

A Time Series Analysis of Turkish Trade Patterns at the

Sector Level
Erlat H.

Abstract
In our previous research on the pattern of Turkish trade (Erlat and Erlat, 2012) we tried to
establish if this pattern had a persistent nature or whether it was dynamic. In doing so we used
tools originally developed by Gagnon and Rose (1995) and later used by Carolan, Singh and
Talati (1998) and Carter and Li (2002, 2004). These involved (i) classifying the sectors as
surplus, balance and deficit sectors and constructing 3x3 contingency tables indicating whether
sectors, say, that showed a deficit at the beginning of a period, remained deficit sectors at the
end of the period or became balance and surplus sectors; (ii) testing whether the pattern at the
end of the period was independent of the pattern at the beginning period, and (iii) constructing
histograms regarding the distribution of how long the sectors have been showing surpluses over
the period. We consider three aspects of this approach that may require improvement: (i) The
results are highly aggregated even though the data used, at least in Erlat and Erlat (2012), are
at the SITC 5 digit level. (ii) The results refer to the comparison between the beginning and
ending of two periods that are years apart. Thus, how the patterns at the end of the period are
reached is not investigated. (iii) The only tools that take the individual sectors and how they
behave during the period into account are the histograms. To remedy these shortcomings, we
followed Carolan, Mora and Singh (2012)s lead and applied time series methods to individual
sectors to obtain information about the path their trade balances took over the period under
consideration. This also allowed us to pinpoint those sectors that have been successful in trade.
We first constructed two series using export and import data for the sectors to be considered.
First, we have the normalized trade balance for sector i at time t, NBit, to be used as the subject
of the time series analysis. Second, we have the normalized trade volume for sector i at time t,
NVit, to be used in presenting the results of the time series analysis. The sum of the NVit across
i for any t is always 100. It, thus, shows the significance of the ith good (or sector) in overall
trade. Since the focus of our time series analysis was the NBit, we established if the trade
balance of a given sector increased, decreased or remained the same. This means that we
needed to be interested in the long run movement of the NBit; in other words, the trend
component in the series. This component may be stochastic, implying the presence of a unit
root, or deterministic, implying a trend stationary series. In the second case, the sign of a
statistically significant coefficient for the linear trend term will indicate to us the direction of
the change while a statistically insignificant coefficient would imply that there has been no
significant change in the trade balance of that sector. We used two tests for this purpose. The
first one had the existence of a unit root as its null hypothesis and our test for this was the
Augmented Dickey-Fuller (ADF) test. The second had stationarity as its null and the test we
used was Kwiatowski, Phillips, Schmidt and Shin (KPSS) test. The joint use of the ADF and
KPSS tests leads to the classification of the sectors into eight groups. Groups IV-VII contain
results where there are no conflicts. Of these IV indicates that the series are nonstationary
while VI-VII indicate that they are stationary. Groups I-III and VIII indicate conflicts. However,
we used the results in I-III by regarding the stationarity obtained by the KPSS test as an
indication that ADF lacks power in the sense that the null of a unit root would have been
rejected. The conflict in VIII implies that the NBit has neither a unit root, nor is it stationary.
Thus, these sectors were ignored. The data are the same ones used in Erlat and Erlat (2012)
and will enable us to compare our results with those obtained in that paper. They are from 5-

EY International Congress on Economics I

"Europe and Global Economic Rebalancing
October 24-25, 2013, Ankara/Turkey

digit SITC Rev. 3 sectors and are in U.S. dollars. They cover Turkish trade with the world for
the period 1969-2001. They were obtained from the TURKSTAT database. There are 3114 5digit sectors but we eliminated those sectors that either had no exports or imports or both at any
year during the period in question. This reduced the number of sectors to be analyzed to 1118.
We also used the technological classification of the data and the presentation of the results as in
Erlat and Erlat (2012). When we look at the aggregate results of this paper, we find that there is
not much that is new compared to those in Erlat and Erlat (2012). But, when we consider the
disaggregated results, we find information about the nature of the dynamism in the sectors
classified as such. We find that the number and share in 2001 trade of positive change sectors is
larger in all categories except Raw-Material Intensive Goods, a category including more
traditional export sectors. By the same token, Difficult-to-Imitate Research Intensive Goods
appears to be the most dynamic sector with 21 top dynamic 5-digit sectors. Hence, we are able
to say that Turkey not only has a dynamic trade pattern, but that this dynamism favours
improvements in the trade balance rather than declines. We intend, in future research, to apply
this approach to Turkeys trade with its specific trading partners, individually or as welldefined groups. We also intend to update the data to include more recent years. This may
enable us to include those sectors that have started trading in 1985.
Keywords: to be entered
JEL Codes: to be entered

References
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