The effects of Turkish-Russian political relations on bilateral trade balance: Cointegration and causal analysis

Abstract

The development of political relations between countries usually causes some changes in the volume of countries’ foreign trade with each other as well. In this context, every worsening of political relations between the countries is supposed to reduce the foreign trade volume, as well as the betterment of political relations is expected to increase it. Therefore, countries willing to benefit from foreign trade have to maintain good political relations with the other countries. In this paper we examine long run determinants of the trade balance between Turkey and Russia, giving particular thought to the influence of the political relations between two countries on their foreign trade. The model is conducted by using quarterly data over the period from 1996 to 2016. The paper confirms the existence of long run negative relationships between reel effective exchange rates, foreign policy crises and trade balance. However, the influence of foreign policy successes turned out to not have any significant effects on the trade balance