An ex ante evaluation of free trade agreements:|The case of Turkey and Brazil

Abstract

As globalization spreads out all over the world, developing countries such as Turkey and Brazil become more vulnerable to global economic developments. Free trade agreements (FTA) can be viewed as one of the measures to reach the speed of economic globalization. Within this context, Turkey wants to sign a free trade agree agreement with Common Market of the South (MERCOSUR) which Brazil is a member of. This study tries to specify the determinants of a potential increase in trade volume, exports and imports between Turkey and Brazil and to investigate in which sectors there will be a revealed comparative advantage between Turkey and Brazil. The study analyses trade volume, export and import trade flows between two countries from 1995 to 2014 by using gravity model. The results show that the growth in GDP and PPP of both countries positively affects the trade volume and export to Brazil, import from Brazil. On the other hand, as trade cost decreases, trade volume and export to Brazil increase. Revealed comparative advantage (RCA) index is also used in this study to determine which sectors will have bigger RCA. The panel data consists of RCA of 16 different product groups between 1990 and 2014. The results show that Brazil can benefit from its RCA in animal products, vegetables, food products, minerals and wood while Turkey can benefit from its RCA in textiles and clothing, stone and glass, metals, machinery and electronics, transportation and plastic or rubber products.