The Trade Effects of the EU-Algeria FTA on Turkey: A Difference-in-Differences Approach

Abstract

This paper investigates the trade effects of the free trade agreement (FTA) signed between Algeria and the European Union (EU) on Turkish exports to Algeria, using a difference-in-differences (DID) approach. The agreement parties signed the FTA in 2005, which helped significantly reduce tariffs and non-tariff barriers between Algeria and the EU but not between Algeria and Turkey, which put Turkey in an asymmetric position. This created a trade diversion effect, which may potentially have harmed Turkey’s exports to Algeria. The paper uses data on trade flows between Turkey and Algeria and between Turkey and a control group of 14 countries that did not sign the FTA with the EU for the period 2000–2022. The paper estimates the DID estimator, which represents the difference in Turkish exports towards Algeria (treated group) and other countries (control group) before and after the FTA. The paper also calculates the counterfactual exports, which are the exports that would have occurred if there had been no FTA between Algeria and the EU. The paper finds that the FTA had a negative and significant effect on the exports of Turkey to Algeria, relative to the control group. The paper concludes that the FTA resulted in a trade loss for Turkey.