The Impact of the Customs Union with EU on Turkish Manufacturing

Using industry level panel data, we study how increasing openness to international markets over the 1980-1999 period have affected the structure and performance of Turkish manufacturing industries, with special emphasis on the market disciplining role of imports. Our findings indicate that the impact of import penetration as potential competition has been less in highly concentrated industries than in less concentrated industries. Moreover, changes import penetration did not reduce (output-) concentration in concentrated industries, while for the less concentrated industries changes in import penetration had a mildly significant negative impact on market concentration. It was also observed that changes in import penetration had a significant positive, rather than negative, the effect on price-cost margins (PCM) with a one-year lag in high PCM industries; while for the low PCM industries current changes in import penetration had again a significant positive impact on profit margins. Thus, imports do not seem to provide discipline for either the low or high PCM industries.