Impact of Exchange Rate and Customs Union on Trade Balance of Turkey with EU (15)
Mehmet Yazici, M. Qamarul Islam

Abstract
This paper investigates the short-run and long-run impact of real exchange rate changes and Customs Union (CU) agreement on the trade balance of Turkey with European Union (15) countries (EU (15)). In the estimation procedure, the bounds testing approach to the cointegration and the error correction modeling is employed. Unlike the previous papers utilizing this approach, however, we adopt a new strategy in the model  phase that ensures the  of a statistically reliable and cointegrated model as the optimal model for estimation. Estimation results based on the quarterly data for 1982-I to 2001-IV period indicate no evidence of J-curve effect and no significant effect of customs union in the short run. In the long run, only domestic income variable has significant and expected negative effect and neither exchange rate nor customs union has any significant effect on the trade balance of Turkey with EU (15).

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