Abstract:

In the study, the short- and long-term effects of the real exchange rate and income changes on bilateral trade between Turkey and Russia are investigated. Russia, one of the countries with which Turkey trades the most, is one of the most important partners of Turkey, especially in the import of intermediate goods and energy. Although Germany has been one of the strongest trade partners until a certain period, Russia has been the most imported country as of 2019. In this context, the subject of the study is to examine the bilateral foreign trade relationship between Turkey and Russia and to test the validity of the Marshall-Lerner condition, J curve and S curve. Accordingly, the analysis is performed using the monthly data obtained over the period of 2000:01–2019:08 via the bounds test approach based on the Autoregressive Distributed Lags (ARDL) model. Obtained findings reveal that real exchange rate elasticity of bilateral foreign trade balance is positive in both the long- and the short-run. This indicates that the Marshall-Lerner condition is met, and the J-curve is valid only in the long-run. The industrial production indexes representing the country’s revenues, being statistically significant in both the short- and the long-run, have negative impacts for maintaining the bilateral trade balance in Turkey, whereas positive impacts in Russia.

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