Trade liberalization and some macroeconomic indicators in Turkey (1980-2018)

This study aims to examine the impact of trade liberalization on some macroeconomic indicators (foreign direct investment, exports, imports, trade balance, and government size) in Turkey. Our study employed the autoregressive distributed lag bound test (ARDL) approach, unit root test, bound test for long-run estimation, and error correction term (EC). Findings show that trade liberalization does not have a positive impact on foreign direct investment inflow into the Turkish market, as well as that currency depreciation accompanied by an open economy decreases foreign capital inflow. Trade liberalization impacts positively on exports to the G7 by enhancing technological competitiveness. Moreover, foreign income impacts positively on exports, compared to pre-liberalization exports increased gradually, based on econometric results compared to some advanced countries, where short-run policies will lead to increased exports. Consequently, intermediate imports influenced manufacturing exports positively; this result confirms the cointegration relationship matching advanced economies. To show the impact of trade liberalization on the trade balance, a dummy variable was introduced as a liberalization indicator. The results reveal that trade liberalization has a positive impact on the trade balance. Last but not least, trade liberalization has a negative impact on government size. The study recommended that a strong currency be considered the short way to attract foreign direct investment. To increase exports to the G7, innovation is the best factor. Exporting to high-income countries should be a priority. Importing sophisticated inputs will lead to increased exports. Increasing government spending on education, health, and social protection will compensate for losses from trade liberalization.