Abstract
The research proposal suggests investigating the topic of economic tensions between Turkey and Egypt. It is proposed to apply the gravity model to assess the trade flows between the two countries so that their economic ties can be explored. Despite the elaboration on gravity models – as well as their application – having been significant in the scholarly dimension, the theme of economic relations between Turkey and Egypt is not explored appropriately. It is expected that Egypt and Turkey will have significant trade flow dynamics despite contradictions in the political field. Then, given that Egypt and Turkey have visible trade ties, it is suggested that economic tensions between them hinder their economic development.
Introduction
In 2002, with the coming to power of the Justice and Development Party, after being relatively passive in the Middle East, Turkey began to be active in the region. Turkey and Egypt are two powerful players in the Mediterranean and the Islamic world (Adly, 2021). The multi-vector foreign policy of Turkey and mutual visits at the highest level contributed to the development of political and economic cooperation with Egypt. In 2009, according to Egypt, Turkey could play a constructive role in the peace process in the Middle East (Hellyer & Meral, 2021). It was also noted that the Erdogan government is pursuing a more pro-Palestinian policy than its predecessors, which has strengthened relations between the two countries. However, with the flow of time, these relations have been spoiled considerably.
Economic cooperation between Cairo and Ankara is developing despite the absence of steps to normalize diplomatic relationships between the two countries. Firstly, Egypt is experiencing a deep economic crisis. The decrease in the level of trade cooperation with Turkey, which ranks third among the states importing Egyptian products, will inevitably hit the Egyptian economy. Secondly, Turkey is actively developing economic cooperation with African countries (Adly, 2021). A significant part of the cargo transportation is carried out through the Suez Canal, and the interruption of economic ties with Egypt will negatively affect trade not only with this country but also with other African countries.
A step towards improvement in Turkish-Egyptian relations was the permission for Egypt to conduct economic activities on the Turkish continental shelf from February 18 to August 1, 2021 (Bal & Celik, 2022). This was followed by statements by the Turkish Foreign Minister that his country could start a dialogue with Egypt on the delimitation of the maritime zone in the Mediterranean and resume contacts at the diplomatic level.
Such a state of affairs makes the investigation of the tensions between the two countries in the economic field relevant. The economic dimension is to demonstrate the objective side of the issue, alienating from speculations and subjectivism within the scope of political activities. It is suggested to evaluate the relations between Turkey and Egypt by appealing to quantitative methods of research.
Unfortunately, the scholarly dimension provides little to no research within the scope of this particular theme. Previously, the relations between the two mentioned states have been studied mostly from the political perspective. Such a condition implies the necessity of developing a particular approach appealing to investigations from studies that might be related to the topic indirectly. Particularly, gravitation models of trade flows have demonstrated significant applicability and significance in the framework of assessing bilateral economic relations. The discussion below proposes to evaluate economic relations between Turkey and Egypt using a gravitation model in order to prove that the tensions within the given scope hinder the economic growth and prosperity of both.
Literature Review
The results of an important scientific study that laid the foundation for a number of works using the gravity model are reflected in the work of John McCallum. The author examines trade between Canadian provinces and thirty US states in 1988, combining data from several sources. Canada and the United States were, at that time, parties to the free trade agreement (Sultan & Munir, 2015). McCallum tries to understand whether (ceteris paribus) the volume of trade differed between territories separated by the Canadian-American border and regions located within the same country. The dependent variable in the estimated equation is the volume of trade between states (or provinces). The desired effect of the border is taken into account by adding a variable to the gravity model – an indicator of the presence of a state border between trading entities. The results show that even the open border between the US and Canada in 1988 had a strong negative impact on trade volumes. This paradoxical result contributed to the further application of the gravitational model for the study of the revealed phenomenon.
A significant step in the development of the gravity trading model was the study by Anderson and Van Wincoop, partly motivated by the work of McCallum. Discussing the gravitational model that scientists used so often in previous years, the authors note that it still does not have (at that time) sufficient theoretical justification (Sultan & Munir, 2015). Several conclusions follow from this. First, the results may be biased due to missing variables. Secondly, on the basis of the existing model, it is impossible to correctly perform comparative statics, for example, to answer the question of how the removal of a particular barrier will affect the volume of trade.
From this, James Anderson and Eric Van Wynkoop built a theoretically based specification of the gravity equation and then applied the resulting model to a new estimate of the boundary effect identified by McCallum. Melitz expanded the trade model in terms of monopolistic competition, allowing for heterogeneous commerce and exporting at a fixed cost (Khayat & McMillan, 2019). Melitz’s framework is commonly used for the research of trade policy.
At this point, it should be stressed that by using the gravity model, this study will analyze the bilateral commerce between Turkey and Egypt. Many studies have explored the trading prospects utilizing both cross-sectional and panel interoperability of the gravity model. Irshad et al. (2018) evaluated China’s trade trends with OPEC member nations from 1990 to 2016 by using a gravity model. The distance has a detrimental effect on the income, GDP, and trade freedom in China and OPEC countries that are heavily impacted by bilateral trade.
Magrini et al. (2017) calculated that the EU trade policies had a causal impact on the Southern Mediterranean Countries in the fisheries and agricultural goods from 2004 to 2014, using progressively differentiated data at the sectoral stages. This research used matching estimating approaches, which are not dependent on the statistical parameters for continuous treatment. Specifically, a general tendency corresponds to the methods used to evaluate preferred treatment. The results indicate that the impact of EU preferences on the trade of fisheries and agriculture in the Southern Mediterranean Countries is considerable and efficient.
In the same perspective, Cinar et al. (2016) utilized the gravity concept to investigate whether nations in the old Silk Road Area are meeting or failing to meet the potential trade with China. It examined the potential trading opportunities using counterfactual, out-sample, and in-sample approaches. The results indicate that trade allies of China’s old Silk Road must acknowledge the potential development objectives of China from 1990 to 2013. Bialynicka-Birula (2015) proposed the gravity method to international commerce in the European Community and concluded that distance has a negative and substantial influence.
Sultan & Munir (2015) separately analyzed Pakistan’s exporting, importing, and trade potential using the gravity model. Utilizing panel statistics from 2001 to 2013, it was determined that regional differences exist in exports, imports, and bilateral reporting. In addition, it demonstrated that Pakistan, Norway, and Hungry all have favorable trade prospects. The export potential of Norway and the Philippines was discovered. By utilizing the gravity equation for the South Asian nations, Kumar & Ahmed (2015) demonstrated that factors such as demographic, GDP, location, and tariff influence trade. It also shows that SAFTA was successful in enhancing intraregional commerce among SAARC nations.
Moreover, several GCC nations have negotiated Free or Preferential Trade Area treaties outside the bloc. The GCC nations, including Oman and Bahrain, have signed many free trade area partnerships with the United States (Boughanmi et al., 2016). Boughanmi et al. (2016) have analyzed variables that have hampered commerce between these nations. If two countries do not start on the same footing, imports, and exports between them will be drastically curtailed. For example, ties between Iran and the United States or Iran and Saudi Arabia, as well as others, were explored in this vein. In addition to other considerations, the impact of one state on the other influences the relationship between the two nations. For instance, as a superpower, the US has a significant effect on the global economy. Thus, other countries want to preserve good relations with the US, which in turn impacts their relationships with other nations.
Empirical studies have established the commercial relationship between Arab nations, which may be considered related to this proposed research to an exact extent. In particular, Waheed & Abbas (2015) have examined the commercial relationship between GCC nations in the intra-Arab area and in nations outside of it. In this research, the gravity concept was applied for trade analysis. Nevertheless, the researchers modified the usual gravity model by including the area dummy, language, common borders, trade openness, and Arab nations. Utilizing the panel least square test, the investigation uncovered a somewhat accurate explanation for Arab commerce. It revealed, for example, that the GDP was favorably correlated with intra-Arab trade, but the bilateral distance between nations had a negative effect on the GDP. The findings of the research also indicated that the actual intra-Arab trade is much lower than the predicted intra-Arab trade, underscoring the growth of multilateral economic cooperation, particularly on the regional level.
Likewise, Salim et al. (2011) performed research to determine the commercial effect of a GCC nation on its members. From 1980 to 2008, the research also used the gravity model and the stochastic frontier. The findings of the research indicated that the GCC block had a major effect on the expansion of commerce. The real capacity of the member states is underutilized, emphasizing the need for more research and appropriate use of their economic opportunities.
Smarzynska (2001) investigated a novel technique for expressing the position of two trade partners compared to all other nations. The new measurement was founded on the idea of the global trade gravity core and closely resembled the theory of gravity. The research found that GDP per capita is favorable and substantial, but as predicted, distance has a negative impact (Smarzynska, 2001). The research found that GDP per capita is favorable and substantial, but as predicted, distance has a negative impact (Smarzynska, 2001).
Research Questions and Hypotheses
The emphasis of the current research is on determining the actual losses that Egypt and Turkey face due to the tensions in the economic field between them. Using the gravity model, which investigates the relationship between nations, the research will discover the factors that influence the trade flows between Egypt and Turkey. It is anticipated that the results of the study will be advantageous for the improvement of trade between external regions, as well as the identification of potential barriers and impediments, thereby contributing to the strengthening of Turkey-Egypt economic relations on multiple fronts. It will also aid stakeholders and decision-makers in revising trade policies in accordance with the demands and requirements of these two nations.
Research Questions
- What is the dynamic of trade flows between Egypt and Turkey for the period of 2002 – 2021?
- What is the extent of economic interaction between Egypt and Turkey for the period of 2002 – 2021?
- Do the tensions in the economic field between Egypt and Turkey harm their development considerably?
Hypotheses
- H1: It is expected that Egypt and Turkey will have significant trade flow dynamics despite contradictions in the political field.
- H2: Given that Egypt and Turkey have visible trade ties, it is suggested that economic tensions between them hinder their economic development.
Methodology
Three dependent variables, bidirectional trade flows, export, and import, will be regressed on a subset of standard explanatory factors as part of this research. These variables represented market size, income, population, and distance in relation to one another. These variables are chosen because they serve as the evaluative standards for gauging the economic standing of a nation and its market size. These metrics are also utilized to measure the country’s income level, populace, and area, as well as its per capita GDP. According to several studies, the trade (imports and exports combined) metric is the best of the three. It immediately reflects the features of demand and supply within the nation.
The calculations using the gravity model will be done for each year during the period from 2002 to 2021. The obtained results will then be correlated with the indicators of economic welfare – GDP and, potentially, a rise in real per capita income. As mentioned above, it is expected that the more extent of interaction between Egypt and Turkey, the more significant their economic development and growth, which may stress the fact that the ongoing tensions between these two nations are economically unreasonable and inappropriate.
In this part, it is crucial to accurately define the variables that will be utilized in the study. GDP per capita represented, in natural logarithmic form, the relative income and market volume of the supply and host nations. It indicates that wealthier economies were key foreign investment providers and beneficiaries. The information was gathered from the World Bank repository.
The population variable in natural logarithmic form demonstrated that bigger economies are primary sources and beneficiaries of foreign investments and that this variable is positively associated with bilateral commerce. The data will be gathered from the database of the World Bank.
The natural log form is used to estimate the distance (in kilometers) between the capital cities of the nations. Shipping costs are the primary reason distance is included in the gravity model. Proximity reduces transportation expenses, time delays, the extent of spoiling, and the cost of acquiring information on the legal and bureaucratic processes of the partners.
The research will investigate the gravity model for commerce between Egypt and Turkey. As basic variables, this specification will utilize the natural log form of Egypt and Turkey’s state GDP per capita, the natural log format of the states’ populaces, and the natural logarithm of the distances between the nations. Tijt depicts three dependent variables: the natural log form of bilateral commerce, bilateral export, and bilateral import between the nation of origin I and the country of destination j throughout the period. In year t, the GDP per capita of I j will be represented by GDP pcit and GDP pcjt, accordingly. The population of the home country I in year t and the populace of the nation j in year t will be designated by Popit and Popjt, correspondingly. The distance between the countries will be indicated by DISTij; ijt will be an error term. The formula adapted from Khayat & McMillan (2019) is as follows:
LnπTijt=α0+β1lnGDPpcit+β2lnGDPpcjt+β3lnpoppit+β4lnpoppjt+β5lnDistanceij+εijt
Data Analysis
Geopolitical considerations were the driving force behind the economic tensions on both sides. Nevertheless, prospective trade negotiations will highlight political, cultural, ecological, and security problems. In addition, trade relationships in the energy security and environmental protection sectors offer a platform for collaboration between Turkey and Egypt in the long run. More tangible initiatives are required in the fields of students and academic exchange when there is a limited direct connection. From a social and economic perspective, the current global and regional political context strengthens the need for renewed commitment between Egypt and Turkey.
The outcomes of the research are likely to be that state-level measures should be implemented to maximize trade between Egypt and Turkey. As an example, the governments of these countries should invest in their industrial growth to increase local producer supply. The states should prioritize introducing the supply side for industrial growth in order to encourage investment in the nation’s infrastructure for the improvement of the transport network, technical education for the improvement of technological advancement, and scientific progression for the improvement of the level of productivity.
A diversified economy facilitates the optimization of its trading pattern and the implementation of several economic initiatives. In addition, the quality of exports should be enhanced alongside technical education, which facilitates the introduction of new, creative trading patterns and the growth of trade contacts. Similarly, understanding the interchange of opinions between the people of the two nations contributes to a greater mutual understanding. Programs for direct human interaction, such as the exchange student program, must be supported to improve understanding and ties between Egypt and Turkey.
The economic integration of these countries in terms of commerce is very beneficial for both parties. These advantages extend beyond the economic ramifications for the country since Turkey and Egypt have the same philosophy toward regional security, political, and cultural challenges. The creation of trade agreements between Turkey and Egypt has great value since it is seen as essential for advancing cooperation in non-monetary areas, which is likely to be supported by the finding of this study.
Conclusion
It is proposed that the research will focus on the basic form of the gravity model for three dependent variables (bilateral trade, export, and import) between Turkey and Egypt using a panel data analytic technique from 2002 to 2021. The investigation determined that the source countries’ per capita GDP and population were substantial and appropriately signed.
For the mentioned nations, it is necessary to clearly articulate the conditions for trade development, as the research findings are likely to suggest. It is important to change the free trade agreements’ rules and procedures in order to maintain current standards. The results are also likely to show that the trade policies of both nations should target trade obstacles and promote their elimination in order to increase the trade openness factor, hence enhancing bilateral trade.
References
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