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Turkey and the EU: Economic Integration and Labour Migration Scott McDonald

12 th 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) &

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Turkey and the EU: Economic Integration and Labour Migration Scott McDonald

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  1. 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) & YontemSonmez (Lancashire Business School, UCLAN) & Karen Thierfelder (US Naval Academy)

  2. Outline of the Presentation • Turkey – EU Relations • Aim • Data & the Globe_Mig Global CGE Model • Policy Experiments and Model Closures • Results • Concluding comments

  3. 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

  4. 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)

  5. %s of Total Imports and Exports by Regions

  6. Number of skilled and unskilled Turkish labour in Europe Source: GMig2 Database, 2007.

  7. Remittances received by Turkey from EU countries, US$ billions Source: GMig2 Database, 2007

  8. Aim • To study the economic implications of a possible EU membership of Turkey  How?

  9. Policy Experiments • removal of bilateral import duties on all commodities traded between Turkey and EU27 • removal of bilateral export taxes ….. • removal of both bilateral import and export duties, i.e. FTA scenario • FTA plus the imposition of EU’s CET by Turkey on commodity trade with third countries, i.e. CU scenario • CU plus agricultural liberalisation • CU plus agr. lib. plus endogenousmigration

  10. Macro Economic Closure • FEX -Flexible exchange rate • Investment -Investment driven savings • Government -Absorption share fixed -Value added tax flexible - fixed internal balance • Numeraire -CPI

  11. 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

  12. 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

  13. RESULTS

  14. % Changes in Turkish GDP

  15. 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 Remittances sent back to Turkey increase slightly

  16. Slutsky Approximation EV by Regions on Consumption, US$ billions

  17. Tax Replacement, %s

  18. Changes in Trade Shares with CU % Changes in Turkish Imports from ROW % Changes in Turkish Imports from EU

  19. 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.

  20. 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

  21. 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.

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