The role of Covid-19 policy responses on GVC participation: the Turkish experience

Purpose - This paper explores the association between a variety of trade and government policy measures of both home and trade partners introduced during the Covid-19 pandemic within the gravity-like framework by using the Turkish bilateral trade statistics at the six-digit product level from February 2020 to March 2022. Design/methodology/approach - The empirical model is estimated by employing the two-way fixed effects (TWFE) estimation technique to get rid of the effects of unobserved time-invariant idiosyncratic country-product effects in the model and to evade the possible autocorrelation problem of trade measures. Findings - Our empirical analysis suggests that lower Turkish GVC participation during this period can be attributed to lower mobilities and the lack of vaccines globally. Our analysis utilizing the different income groups of countries and technology group of sectors suggests that Turkish high-tech backward participation with developed countries can be more sensitive to any changes in Covid-19-related policy measures, whereas Turkish forward participation with both developed and developing markets can be more volatile during the pandemic because of the containment measures. Practical implications - Sustaining mobility in the global production process is the key finding to sustain both backward and forward GVC linkages. In addition, enhancing a variety of partner countries is crucial for sustaining the flows of imported intermediates of the Turkish manufacturing sectors. Moreover, the sophistication of Turkish exported products can be the solution to continue the forward GVC participation even in the shock times. Given the product and partner country-level heterogeneities regarding contingency measures implemented by the governments, policymakers should carefully monitor each sub-sample separately and focus especially on enhancement in information, communication and transportation infrastructures to mitigate the contagious effect of any external shocks. Originality/value - The unique monthly six-digit bilateral product-level trade dataset enables us to observe and utilize heterogeneous effects at the product, sector and partner country levels.