Aslı ŞEN

An Analysis on the Political Economy of Trade Policy Making: Domestic, International and Supranational Factors

2009

(Supervisor: Nazım Engin)

ABSTRACT

The dissertation attempts to analyze the major ingredients of trade policy making process, and the research exhibits a threefold structure in this context, such that it dissects sources of influence on a country’s trade policy formation into basically three pillars. These pillars are determined according to the elements of influence they contain, namely domestic source of influence, international source of influence and related to the first two, supranational source of influence.

As the domestic source of influence, we investigate the role of Turkish business interest groups on import tariff determination. By using Grossman and Helpman’s Protection for Sale Model (1994), we empirically test a major trade-off: relative weights the Turkish government attaches to aggregate welfare and the welfare of business interest groups. Using data from import-competing sectors for the years between 1983-1993 and 1995-2005, we construct both single year and panel data estimations using non-linear two-stage least squares. For the years between 1983-1993, we find that, as the ratio of the population politically organized decreases due to restrictive political environment, the government seems to be attaching relatively higher weight to aggregate welfare. Though this weight is hardly comparable to the ones found in other studies for developed countries. Our results for the years between 1995-2005 show that as Turkey commits itself into the supranational organizations in economic terms, the role of the interest groups, and even the national government itself on the determination of import policy instruments decrease. As the import policy instruments are harmonized, business interest groups in Turkey evolve so as to be strongly pro-EU.

As for the international influence on trade policy making, we examine the strategic interaction between nations in a trade relationship. We provide a game theoretical analysis in order to ascertain the outcomes of a possible trade dispute game between Turkey and Russia considering the lopsided trade relation between the players due to Turkey’s dependence on Russian natural gas. The game starts with a unilateral trade violation by Russia against Turkish exports and evolves introducing the assumption that Russia becomes a member of the WTO, making it possible for Turkey to make a complaint to the Dispute Settlement Body. We find that the costs that are associated with starting a dispute complaint are crucial, implying that disputes concerning large amounts of money are more valuable to complain about. We also find that in trade relations where an asymmetry is observed, if there exists a mutual commitment to a supranational organization for both parties, supranational regulation provides strategy options otherwise infeasible for the disadvantageous party.