The Role of Covid-19 Policy Responses on GVC Participation: The Turkish Experience

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 6-digit product level from February 2020 to March 2022. The unique monthly 6-digit bilateral product-level trade dataset enables us to observe and utilize heterogeneous effects at the product, sector, and country levels. Our initial eye inspection of raw data reveals that the Covid-19 shock is not only a health crisis, but it also represents simultaneous demand and supply shocks for the globally integrated world economy. 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 group of countries and technology group of sectors suggest that Turkish high-tech embedded 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. Given the product and 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.