Effects of quotas on Turkish foreign trade: A gravity model

• We develop two gravity models to analyze Turkish exports.
• We especially analyze the effect of quotas on the total exports of Turkey via road transport.
• Quotas have a significant negative effect on Turkish exports via road transport.
• Quotas have a significant negative effect on Turkish textile sector exports.

Turkey's role as a world trade participant has grown in recent years, particularly as the country is capitalizing more on its unique geopolitical position. Given the important trade volume and rooted relations between Turkey and the EU, their trade and economic relations should be paid due attention and steps should be taken to further improve these relations. Turkey is the biggest economy in a Customs Union (CU) with EU but not in EU, along with Andorra, Monaco, and San Marino. When it joined the CU in 1996, Turkey has removed all customs duties and equivalent charges as well as quantitative restrictions. However some EU countries imposes quota limits to the Turkish road transporters that may indirectly restricts the trade between Turkey and the related country. In this study, we investigate the effect of road transport quotas on Turkish foreign trade with EU countries. A gravity model that is estimated with panel data from 18 selected EU countries between 2005 and 2012 is used for this purpose. Furthermore, as one of the leading sectors using road transportation for Turkey's export to EU countries, textile sector is analyzed as a case study. The results indicate that quotas have significant effects on Turkish total exports via road transport as well as the Turkish textile exports to EU countries. The estimated amount of the loss of the exports of Turkey to the selected countries in analyzed time period is 10.6 billion $ in Turkey's total exports via road transport, and 5.65 billion $ in Turkey's total textile exports. Therefore, it can be concluded that the quota limitations are against CU regulations because they do not limit not on the road transportation but also the trade between parties.