THE IMPLEMENTATION OF GRAVITY MODEL FOR THE EXTENDED TURKISH COUNCIL: POSSIBLE ANALYSIS OF THE CUSTOMS UNION

Abstract

Gravity model is based on the hypothesis that it is directly proportional to the economic size between countries and inversely proportional to the distance between them. The model adapted to foreign trade has made with panel data analysis that is possible customs union between Azerbaijan, Kazakhstan, Kyrgyzstan, Hungary, Uzbekistan, Turkmenistan, and Turkey. These are total of seven countries expected to become the members of the Turkic Council in the future. Moving from here, in these analyze the simple gravity model was applied by expanding macroeconomic data obtained from the World Bank between 2000 and 2018. The explanatory variables are its partner countries' GDP, total population, the distance between countries and as dummies, customs union, and common land border. The dependent variable is partner countries’ export volumes. According to the results, partner countries' coefficients have significant and distance coefficient is insignificant. While GDP has positive effect on export; population, customs union, common land borders have negative impacts. We observed that the sign of the estimation coefficient of distance variable was found in accordance with the theory.