Globalization,
Foreign Trade Liberalization,
Customs Union with the EU,
Inward and Outward FDI
Dilek Şahin
Emre Kaya
Hazal Şenses
Merve Tekkartal
 Globalization is the process of the world becoming more connected through
technology, trade, economics, politics, and increasingly, every other aspect of
people’s lives.
 In 2000, IMF identified 4 basic aspects of Globalization;
• trade and transaction
• capital and investment movements
• migration and movement of people
• dissemination of knowledge
 The KOF Index of Globalization measures the three main dimensions of Globalization:
• economic
• social
• political
 They also calculate an overall index of globalization and sub-indices referring to
• actual economic flows
• economic restrictions
• data on information flows
• data on personal contact
• data on cultural proximity
Source: How to Measure Globalisation? A New Globalisation Index (NGI) , Petra Vujakovic
The 1920s can be defined as relatively open economy era.
 Wholesale trade
 Foreign capital – partnerships
 Trade deficit
 Low protectionism
Foreign Capital-Partnership
Total paid-in capital of companies
44%
After the Great Depression
 The Great Depression brought the view of evolving to closed, national and self
sufficient economies.
 Adoptation of Keynesian policies in many countries
 Protectionism and SOME SORT of Etatism
 WHY YES?
 Agricultural collapse
 5 year Industrial Development Plan
 24 nationalized companies
 Social and Political (for e.g«Türk Vatandaşlarına
Tahsis Edilen Sanat ve Hizmetler Kanunu»-1932)
 WHY NO?
 32 new companies
 Low profit margins
after 1929
 International
Withdrawals
 Osmanlı Bankası
During the World War II,
 the volume of imports did not change much,
 the volume of exports has increased,
 chromate was exported to Germany.
*Group 15’s presentation
In 1940s and 1950s,
 Devaluation of TL
 Removal of restrictions on imports
 Removal of price controls
 Truman Doctrine and Marshall Plan - OEEC
 Trade deficit and Import dependency
 Foreign sources to finance fixed investments
 1958 – IMF’s conditionalities – Devaluation of TL again
*Group 15’s presentation
Between 1960 and 1980,
 Import substitution industrialization
 The growth in imports was more than the growth in exports
 Emigration of Turkish workers – social globalization
 Devaluation of TL (1970)
 The growth in exports of industry fell short of expectations
 The Oil Crises (1973,1979)
 “70 sente muhtacız.”
January 24 Decisions (1980)
• Devaluation of TL
• Cut back on agricultural subsidies
• Trade Liberalization
• International transfers were allowed
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Turkey's Exports/Gdp & Import/GDP
36
34
32
30
28
26
24
22
20
18
Exports (% of GDP)
16
Imports (%of GDP)
14
12
10
8
6
4
2
0
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
An economic metric calculated as the ratio of country's total trade, the sum
of exports plus imports, to the country's gross domestic product.
(Exports + Imports)/(Gross Domestic Product)
Trade (% of GDP)
70
60
50
40
30
20
10
0
In 1980s and 1990s,
 Foreign trade was liberalized basically in the early 1980's, and further in the process
of joining the customs union with the European Union in 1996.
 Trade liberalization resulted almost no increase in the importance of EXPORT OF
GOODS. Its share to the GDP was stuck around 12-13 percent. Rather, EXPORTS OF
SERVICES have risen and import of goods and services has surged tremendously.
 The share of imports to the GDP rose from around 15 percent to 30 percent. Trade
openness increased continuously as the share of foreign trade to the GDP rose from
25-30 percent to around 55 percent.
Source: Financial Markets and Globalization in Turkey, Tulay Arin, University of Istanbul, Faculty of Economics
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Turkey's Exports/Gdp & Import/GDP
36
34
32
30
28
26
24
22
20
18
Exports (% of GDP)
16
Imports (%of GDP)
14
12
10
8
6
4
2
0
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Trade (% of GDP)
70
60
50
40
30
20
10
0
 Trade openness resulted in higher dependency on imports. Trade account deficit deteriorated
continuously which jumped by almost three times, from around 4 percent to 11 percent of
the GDP. However, as trade account deficit was deteriorating, service incomes were growing.
Thus, during this period Turkey did not face seriously high current account deficit.
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Turkey's Exports/Gdp & Import/GDP
36
34
32
30
28
26
24
22
20
18
Exports (% of GDP)
16
Imports (%of GDP)
14
12
10
8
6
4
2
0
1960
1961
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Annual Export Growth Rate of Turkey
0.7
0.65
0.6
0.55
0.5
0.45
0.4
0.35
0.3
0.25
0.2
0.15
0.1
0.05
0
-0.05
-0.1
-0.15
-0.2
-0.25
-0.3
Annual Export Growth Rate of Turkey
Merchandise Exports to (% of total merchandise exports)
90
85
80
75
70
65
High-income economies
60
Developing economies within region
55
Developing economies in Europe & Central Asia
50
45
40
Developing economies in Middle East & North
Africa
35
Developing economies in Latin America & the
Caribbean
30
Developing economies outside region
25
Economies in the Arab World
20
15
10
5
2014
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
1984
1982
1980
1978
1976
1974
1972
1970
1968
1966
1964
1962
1960
0
Merchandise Imports from (% of total merchandise imports)
95
90
85
80
75
70
65
Developing economies outside region
60
55
50
45
40
35
30
25
20
15
10
5
0
Economies in the Arab World
High-income economies
Developing economies within region
Developing economies in Middle East & North
Africa
Developing economies in Europe & Central Asia
1962
1963
1964
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Exports by Industry (as % of merchandise exports)
90
85
80
75
70
65
60
55
50
Agricultural raw materials exports
45
Fuel exports
40
Manufactures exports
Food exports
35
Ores and metals exports
30
25
20
15
10
5
0
Agriculture’s share of overall trade has been shrinking as has the gap between exports and imports
of agricultural goods. As shown in the figure, while agricultural exports from Turkey have grown rapidly,
especially since 1990, in relative terms they have declined in importance and currently comprise around 10
percent of total shipments abroad, down from a dominant 90 percent in 1961.
Source: World Bank & World Trade Organization
There has been a significant change in the sectoral composition of Turkey’s exports over the last
decade. The share of the textile and apparel sector, which accounted for 40 percent of exports at
the beginning of the decade, declined dramatically. It was replaced in particular by the
automotive sector, which grew rapidly during this period, but also by the machinery and metals
sectors.
The EU was Turkey’s largest trading
partner, but its relative importance is
clearly in decline, with MENA gaining
more prominence.
In MENA, both
vehicles and textiles
declined in
importance over the
last decade, while
metals increased
their importance.
Exports to Top Five Destinations in 2014
Imports from Top Five Sources in 2014
FOREIGN DIRECT INVESTMENTS IN
TURKEY AFTER FINANCIAL
LIBERALIZATION:
 Financial deregulation began in 1981 when controls on interest rates were removed.
 Collapse of financial liberalization attempt – Bankers crisis 1982
 Foreign Exchange trade was liberalized in 1984
 Istanbul Stock Exchange was reopened in 1986
 Capital Account Liberalization in 1989
 Foreign direct investment (FDI)
investment made by a company or entity
based in one country, into a company or entity based in another country.
 Entities making direct investments typically have a significant degree of influence
and control over the company into which the investment is made.
 A portfolio investment is a hands-off or passive investment of securities in a
portfolio. A portfolio investment is made with the expectation of earning a return on
it.
 After the capital liberalization it was expected to have an increasing trend in foreign
capital inflows and outflows, since the correlation between liberalization and capital
mobility generally is considered high.
 However, the volume of net inflows and outflows of foreign capital as a percent of the GDP
fluctuated very much in this period.
 In the early 1990's especially in the boom periods there were important amounts of
capital inflows, mostly short-term capital. Short term credit use and changes in the
reserves and asset holdings of commercial banks were determinants of these flows.
 However, Turkey experienced net outflows of capital in 1988, 1991 and 1994 ( in the bust
periods).
 Foreign direct investment was very disappointing in volume and in its ratio to the
GDP. It was never higher than around half a percentage point.
 Net portfolio investments were positive along these years.
 In total, foreign capital flows did not provide significant and dependable amount of
funds; they proceeded literally by bursts and busts; also, a systematic degree of
diversification in capital flows could not be observed. Turkey experienced foreign
capital inflow surge in 1990 when capital account liberalization was in effect.
 Capital account liberalization failed to attract real investment funds. Foreign
portfolio investments in relative terms fluctuated considerably.
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2.5
2000
3
1999
3.5
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
Foreign Direct Investment, net inflows (% of GDP)
4
Tüpraş
Erdemir
Botaş
Seka
Petkim
Türk
Telekom
2
Turkey
1.5
1
0.5
0
-2
-4
2014
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
1979
1978
1977
1976
1975
1974
1973
1972
1971
1970
MINT Countries Comparison:
Foreign Direct Investment, net inflows (% of GDP)
12
10
8
6
Turkey
Nigeria
4
Mexico
Indonesia
2
0
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
BRICS Countries Comparison:
Foreign Direct Investment, net inflows (% of GDP)
7
6
5
4
Turkey
Brazil
3
Russian Federation
China
2
1
0
Turkey vs. Developing Countries in Europe and Central Asia
Foreign Direct Investment, net inflows (% of GDP)
7
6
5
4
3
2
1
0
Turkey
Europe & Central Asia (developing only)
World
Foreign direct investment, net outflows (% of GDP)
1
0.9
0.8
0.7
0.6
0.5
0.4
0.3
0.2
0.1
0
2005
2006
2007
2008
2009
2010
Turkey
2011
2012
2013
2014
MINT Countries Comparison
Foreign direct investment, net outflows (% of GDP)
4
3.5
3
2.5
2
1.5
1
0.5
0
2005
2006
2007
2008
Turkey
2009
Nigeria
2010
Mexico
2011
Indonesia
2012
2013
2014
BRICS Countries Comparison
Foreign direct investment, net outflows (% of GDP)
12
10
8
6
4
2
0
2005
2006
2007
2008
2009
2010
2011
2012
China
South Africa
-2
Turkey
Brazil
India
Russian Federation
2013
2014
Turkey vs. Developing Countries in Europe and Central Asia
Foreign direct investment, net outflows (% of GDP)
9
8
7
6
5
4
3
2
1
0
2005
2006
2007
2008
Turkey
2009
2010
Europe & Central Asia (developing only)
2011
2012
World
2013
2014
 Mainly concerns the Industrial Goods:

Abolishing the Tariffs and extremely Minimizing the restrictions on Quotas of those
goods
 Services and Agricultural Products ARE NOT SUBJECT to the Customs
Union
 The only country which is not a full member of EU but a party in CU
 Political Ultimate Aim: Integration(Full membership) to European
Community by fulfilling the economical requirements
 1957-European Economic Community was founded
 1959-Turkey applies for membership
 1963-Ankara Agreement-Integration process starts
Preperation Stage(-1970)
Transtition Stage(-1996)
Final Stage(-present)
 Preperation Period:
 Ankara Agreement
 Semi-abolishing on quota restrictions: Very low tariffs up to a certain
trade volume
 Import growth > export growth
 Share of Imports with European Economics Community:
 1963 %29
 1972 %42
Exports with EEC rose by 9%
But annual export growth 7.5%
Not a boosting effect
 1973
 -Tariffs in the following 22 years
-gradually abolishing(i.e by 1995 = 0)
 Agricultural products raw materials will be negociated later on
 After 1984-imports/exports were liberalized
 Expectations: A huge boost
 Government decision =>Decreasing tariffs with OTHER COUNTRIES to
the level BELOW the Katma Protokol rates
 Reality:EEC share declined
Source: http://europa.eu/rapid/press-release_MEMO-88-125_en.htm
 Reciprocal abolishment of tariff rates % 100
 Necessary path for EU Integration
 «Mal geçer adam geçmez.» - «
 «free movement of goods but not free movement of Labor/people/TURKS»
 Analogy with the 1838 Ottoman Trade Agreement  Capitulations and Düyun-u Umumiye
 Şevket Pamuk interview (1996):
 No need for analogy:
i.
ii.
iii.
Industrial Revolution.
Ottoman Empire lacked of an industrialist class
Turkey has a settled industrial and capital class
 Inclusion of Agricultural Products and Raw Materials
 Is Turkey ready?

Since we are NOT A member of EU Common Trade Policy!
(important in terms of share of subsidies, feeding quality etc.)
 Spain, Italy, Greece (Mediterrenean countries like us)examples-couldn’t
avoid huge imports
 4 different scenarios by WB:
Scenario 1: (tight tariffs)>Scenario2>Scenario3(loose-0 tariffs)
Scenario 4: Being a member of EU-Common Trade Policy)
 1/95 Sayılı Ortak Konseyi Kararı (Gümrük Birliği Kararı).
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Economics.
 Boratav, Korkut. Türkiye İktisat Tarihi 1908-2009. 2003. İmge Kitabı Yanınevi.
 CBRT. Quarterly Bulletin. 1998-I. January-March.
 Doğan, Naci. On Yıllık Dönemde Gümrük Birliğinin Etkileri ve Sonuçları Üzerine Bir
Değerlendirme.Temmuz, 2004. Mevzuat Dergisi.
 Doğan, Seyhun. Soyyiğit Kaya, Semanur. Gümrük Birliği Sonrasında(1996-2009) Türkiye’nin Avrupa
Birliği ile Dış TicaretinÜlke ve Fasıl Bazlı Yoğunlaşma Anlaizi. 2011. Ekonometri ve İstatistik, sayı:14.
sy. 1-14.
 Eker, Meral. Koçtürk, O. Murat. Dünya’da ve Türkiye’de Doğrudan Yabancı Sermaye Yatırımları ve Çok
Uluslu Şirketlerin Gelişimi. 2012. Tarım Ekonomisi Dergisi. 18-(1): 35-42.
 Elgin, Ceyhun. Bogazici University, EC 470 Lecture Notes.
 Gillson, Ian. Rowe, Francis. Evaluation of the EU- Turkey Customs Union. Report No: 85830- TR. 28
March 2014.
 IMF. Direction of Trade Statistics.
 Kara, Hamdi. Yavan, Nuri. Türkiye’de Doğrudan Yabancı Sermaye Yatırımları ve Bölgesel Dağılışı. 2003. Coğrafi Bilimler Dergisi.
1(1): 19-42.
 Karakurum, Ömer. Trading Up to High Income Turkey Country Economic Memorandum. Report No: 82307- TR. May, 2014.
 Karluk, Rıdvan. Gümrük Birliği Dönemecinde Türkiye-Gümrük Birliği Ne Getirdi Ne Götürdü.
 Kilit, M. Gökhan. Tarım Sektörü Gümrük Birliğine Hazır Mı?. İktisadi Kalkınma Vakfı Yayınları. Aralık, 2015. Sayı 161.
 Official Journal of the European Communities. 24 December 1973. Volume 16. No C 113.
 Oran, Baskın. Türk Dış Politikası. Cilt 1 (1919-1980). 2002. İletişim Yayınları, İstanbul.
 Şeker, Murat. Bogazici University, EC 362 Lecture Notes.
 Tezel, Yahya S. Cumhuriyet Döneminin İktisadi Tarihi (1923-1950). 1982, Yurt Yayınları.
 Pamuk, Şevket. Osmanlı’dan Cumhuriyete Küreselleşme İktisat Politikaları ve Büyüme. 2008, Türkiye İş Bankası Kültür Yayınları.
 The World Bank – DataBank
 World Trade Organization - https://www.wto.org
 http://ec.europa.eu/enlargement/pdf/turkey/association_agreement_1964_en.pdf
 http://www.worldbank.org/content/dam/Worldbank/document/eca/turkey/tr-eu-customs-union-tr.pdf