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The Impact of a Customs Union with the European Union on Internal Migration in Turkey

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  • Roberto A. De Santis

Abstract

The impact of the recent Customs Union (CU) agreement between Turkey and the European Union on internal migration is studied using an intra‐industry trade Computable General Equilibrium (CGE) model with intersectoral capital mobility under two alternative specifications for the labor market: the traditional Harris‐Todaro approach and the existence of a “wage curve” in the urban sector. Under both specifications, the numerical results show that the CU is welfare enhancing and causes a reduction of the urban‐rural wage gap as suggested by theoretical studies. At the same time, it leads to rural‐to‐urban migration and raises the capital rent, results that are counter intuitive with respect to the dual economy literature. Furthermore, the rise in formal labor demand and the migration response to the CU have not resulted in an increase in urban unemployment (i.e. the “Todaro paradox”), but rather to a fall in the unemployment pool. The study also shows that the Bhagwati‐Srinivasan proposal of maximizing welfare by uniformly subsidizing the entire labor market is impracticable, especially if the high wage union sector can negotiate employment conditions.

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  • Roberto A. De Santis, 2003. "The Impact of a Customs Union with the European Union on Internal Migration in Turkey," Journal of Regional Science, Wiley Blackwell, vol. 43(2), pages 349-372, May.
    • Handle: RePEc:bla:jregsc:v:43:y:2003:i:2:p:349-372
    DOI: 10.1111/1467-9787.00302
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    1. Bayar, Ali. & Diao, Xinshen & Yeldan, A. Erinc, 2000. "An intertemporal, multi-region general equilibrium model of agricultural trade liberalization in the South Mediterranean NICs, Turkey, and the European Union," TMD discussion papers 56, International Food Policy Research Institute (IFPRI).
    2. Josef Pöschl & Hermine Vidovic & Julia Wörz & Vasily Astrov, 2005. "Turkey:Macroeconomic Vulnerability,Competitiveness and the Labour Market," Working Papers 2005/5, Turkish Economic Association.
    3. Vasily Astrov & Josef Pöschl & Hermine Vidovic & Julia Wörz, 2005. "Turkey: Macroeconomic Vulnerability, Competitiveness and the Labour Market," wiiw Country Profile 21, The Vienna Institute for International Economic Studies, wiiw.
    4. Kitwiwattanachai, Anyarath & Nelson, Doug & Reed, Geoffrey, 2010. "Quantitative impacts of alternative East Asia Free Trade Areas: A Computable General Equilibrium (CGE) assessment," Journal of Policy Modeling, Elsevier, vol. 32(2), pages 286-301, March.

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