Computation of the potential trade of Turkey in the OIC market through estimator selection process

Abstract

As the trade volume of Turkey has tripled in the last decade, one observes a complementary shift in the trade orientation of the country from its conventional markets like the European Union to Asian and African markets. Among the alterative markets, the members of the Organization of Islamic Cooperation (OIC) have become particularly important in the market diversification policy of Turkey. In this respect, computing the actualized trade potential can not only account for the dynamic change in trade orientation of the country but also presents a guideline for policy makers and firms. On the other hand, since recent research in literature stated that estimations of potential trade through a single estimator (monotype estimation) lead to overestimations (or underestimations) which misguide policy makers; thus, this paper employs an estimator selection process. For that purpose, this study uses a gravity model estimated by multiple alternative estimators to assure the econometric credibility. This paper aims at (1) choosing the most adequate estimator possible for the case through an estimator selection process, (2) computing the trade potential of Turkey in the OIC market, and (3) revealing to what extent the trade potential has been actualized up to now.