p I . vi all-“K. ‘ LL! .E. | -. .-»- ‘ 1"- _-\ I- .‘ nnuu.b-O'-¢ .--.‘.f. ...-...-o. ~-.\ . \ ... , .. \N .. .. o-....‘u .-‘-...—.. ....-.‘ -- —qo-—-\.l. .. P ' '2 u. _ . \l " ~-‘.~.\-‘-u— ~5v,|\.,|.. a .‘ -I I N .n . ~ ....‘ v» ’.F “~.n - v ~“ —' A. ~~‘ "‘ 7"ai‘ I-. .. -‘_r:= '. .‘A ' nun ‘.‘ ‘ . . ‘.' x." .. -c.:,;_ n‘ . "’u»\ ‘: ‘.‘ ' , .., .- u‘ 1‘ .m. “A: -... v a O ”'h ‘réfll .V ...‘I.. \. Q “54"4 . .J D. ‘ ‘._‘ ‘- .h§‘..."I .' . WG‘ .‘ , '~;3‘|“.. "‘“CEB: . -~ -_. ‘- ‘-‘ n-., - ‘ \ ' ‘_ a: . u.‘ .~ . p. Q v .‘ .- ‘ ‘c' .. c ‘ . .l". u, ‘U' . I.“- a ABSTRACT ADAPTING TURKISH TRANSPORT POLICY TO EXTERNAL ECONOMIC GOALS BY Asil Gezen Turkey has faced a chronic deficit in her balance of payments since the end of World War II. There are a number of measures in the national tranSport and commercial policy which, if adopted, can eliminate the deficit and create a surplus in the balance of pay- ments. An international trade flow model between 37 countries around Turkey has been developed and tested. The hypotheses that distance, preferential trade agree- ments, and war or political hostility have a significant I s u .HI . D I V I O a a u o . . n. a «u .r . O my I .x I . h. . . . . . n. \ o . R. .s. C .o\ w. J. a i a .2 .z .2 ... _. a I O y 2‘. _ . I: . O .I- .’. G ~. 2 ...i . . x D n 1 . nib - o a. b .r\ c. t .V» . a. . .n n .c u“ .4. . 0" .U’H .‘0 b,“ o.- . . a I .. ..... .. Q. . X. ... .. > L . . . .. i u. u I l . O 3 Q. o . . . o‘ r: .w. ¢ u . o. n: I. 0* .v. , AI c .4 .1. o» p. .u» ~ - 17¢ .Fu _.. u“ h. 2. ... i. I. Q- .- .a~ . . Asil Gezen effect on trade size are supported by empirical testing of the international trade model for 1959 and 1968. The two years have been selected because of expec ed differ- ences in trade flows due to an Open or closed Suez Canal. It has been concluded that when Turkey adopts a number of transport policy related measures, she can effectively offer a transit serviCe to third country trade flows and obtain gateway service benefits. The magni- tude of these benefits is expected to exceed significantly the deficit in the balance of payments. Transit service through Turkey is also expected to increase regional trade. ...,—-.‘ ~ -’”‘"' .. I <'4 ' -A~--- on. a A - 9A P\oov~fi\~. - n .- as. .. _...~“. .v ‘ ‘ .0. M. 9"“ ‘ - « ~..¢ “ \ 4".- » 0 . I _‘ I ‘.o-- D o . u 1 A. -|‘.- e s :" .“o'.“-.'.‘ a .. -..' v\_ F‘ ADAPTING TURKISH TRANSPORT POLICY TO EXTERNAL ECONOMIC GOALS BY Asil Gezen A DISSERTA TION Submitted to Michigan State University in partial fulfillment of the requirements for the degree of DOC TOR OF PHI LOSOPHY Department of Marketing and TranSportation Administration Copyright by ASHQGEZEN I974 3H1. .._... . e, i .M II!" ,rm .. , , . . . .I'l-IN. . . , [Mail .5 . r A. I 'IKHA' ‘n... l‘..- ‘~ ~ Dedicated To AYBERK GEZEN -.. M... 7“ ’\\\-‘~ “.db ' ‘ .. ,.. 1 .. ~nu- 1‘. q-...~‘ . u—nvo uluu9Mn-U' ‘ “ '° 5 .n. . . .- l p r u n .0-» .. ..--...- ..¢ .0- . ~-- g. V- ‘ . ‘ fl ‘ .F e I ‘w- .-1........ u.\ _.- V ”r - -. - . .6... :_:' .. ”5.. r U " - u s ._ u I' ~- -. u ' - "a“ ----....._ c'" ’ 1 .- I.‘ ' .~ . ~o...,r::|:ce " o. - _ ' . _ w .. u, ‘Q,C “ .. :‘v--~ " . “We. Ii “H” '_ ‘ - “‘ " “‘-I :‘;f—)"' ' . . T “v-~ ~4.-h inc.» P . . o ‘ ' . g :“ b. _ um: - --.§ .. ... Mu §.:p. _ . .'~h‘=¢'|.‘ o. ‘ 3...: u., “|\I. r‘ ‘ v . ‘¢:- . I'v“ C’ ‘0 ‘ ..u . ‘r. '- I H "¢C K i t; '- ,-.~, A - e . \- “6 cu“- . 0. 3:..K. ' .4 M . ;F« o‘::x‘..- ' ‘ N .- . .\ ' D . “NI." 5,. _ . ‘ \ ‘4 d” . . éj_ ‘. ‘«~:£I§“. . I I ‘&.‘-F . ‘I ’ Q ‘ J,-S;.,‘ -Q.J..c. 5‘ . \QJ \, M . .. "~ 4 -_<. ~. c .. “Mb I . .‘Q. .. l’. ' .‘.I:. ‘cv. .. . . .‘ «.3; .,‘ o ‘.~=‘ ; r ‘ -T 3. ‘t‘n a G. ‘~=:\~‘ . _ M“: -- ‘H J. I». Q A CKNOWLEDGEMENTS I wish to thank Dr. Kullervo Louhi, Dean of the College of Business Administration and the Graduate School of Business, Michigan State University, who made it possible for me to pursue graduate studies at MSU. Without his encouragement and guidance, I could not have pursued my graduate studies. I am also indebted to Dr. John Hazard, Professor of Tran sportation and Chairman of my Dissertation Committee, who gave freely of his expert guidance and advice. Without his supervision and valuable time, I would have been unable to complete this project. Dr. Hazard has also been my professor and mentor during my years at the University. I also wish to thank Miss Carol Woods for tediously typing the manuscript. It is impossible for me to give adequate thanks to all of the people who have made this dissertation possible. Last, but not least, I wish to thank my dear wife, Ayberk, and my three sons, Rifat, Murat, and Firat, for lovingly bearing and understanding the pressures of my Ph. D. candidacy. ii "s '1 v 3: a A" -."'” O n” D \n’ ..‘.'-.~ hs'- ‘ ‘1'!" IA“ A“ -' ‘ o \ -V ”1:; b. y'I‘QQO. .a- pv- -I"”‘ \ ,1. .. .\ . n. V. “"‘~M‘ . ..-- [\— hv"""“ \ ... . u -\ m. V. nov~l“"" ‘ ~¢.In~-‘~ ' p‘~-'~ ."" ' ~_.. I ‘ - ....-. .~.\ A. ..‘...-v Q -- ~ . 1 F; \.n -O " . . t1...\---. L\. .uu . ' Q , a I . ‘ H... ~ \o.o .. . 'OQV'IC-QQ \nlc'. ‘ ‘ - 1 \ v:-;—»pl :4 ‘ - «An...~,.. ‘ nc‘ . l I\‘ - o . _ '\ . ‘ . ‘ v- d . r: '| cu. :- tk'. t... . . 1 v... 3‘ -; ‘,,_ . r. ' “" '\-‘c.;. Q...- a 1' . ' I‘- ' ‘ ‘v JC"'& ," "v' “P. ‘ V-‘.III 1“. ‘ n 4“, ~~‘ ‘L. ). ".“I- .\ ' . I\o:‘|‘:; 5" fin- H I . V‘ ..::. Sn -s. " -.C ~ :5 .A‘::Q'.. ‘I~ \>._ I W 5 4- ' . “rm-u .‘mf’.’ 27 \ - ' . ‘ MO I.. b ‘ ‘ a..:r...(‘.. .77)- “-u.. fairr' ' ‘I‘. .’ Md. Ta I ‘ . up .u. - . .“'-¢§ ,C. “~. h ‘u. 'i- .v-‘ ‘ v-..‘..a. . TABLE OF CONTENTS Page TABLE OF CONTENTS .............................. iii LIST OF TABLES ................................... vii LIST OF FIGURES .................................. xi CHAPTER 1: INTRODUCTION ....................... 1-35 1.1 The Subject Matter of the Study ................ 1 1. 2 Problem Statement ........................... 5 1. 3 TranSport Policy and Commercial Policy ....... 10 l. 4 National ReSpondent .......................... 15 1. 5 The Region and Years Covered ................ 16 1.6 General Outline of the Study ................... 28 1. 7 Related Research ............................ 30 CHAPTER 2: A MATHEMATICAL FORMULATION OF THE TRADE FLOW MODEL ........ 36-66 2.1 Factors Affecting the Size of Foreign Trade ..... 36 2. 2 Specific Factors Determining the Size of Trade. . 42 2. 2. 1 Potential Supply ........................ 42 2. 2. 2 Potential Demand ....................... 45 2.2. 3 Resistance Factors ..................... 46 Natural Barriers to Trade ............... 46 Artificial Barriers to Trade ............. 6O 2. 3 The General Trade Flow Model ................. 64 iii (I —-Ir!!‘¢:l‘h y . abfl'd! i.- 'n L 4‘ o“ ~.~ ‘& vi Page Economic Problems . . . . . 222 International Problems . . . . 227 8.2.2 Other Modal Problems . . . . 250 Motor Transport . . . . . . . 250 Water Transport . . . . . . . 258 Shipbuilding . . . . . . . . . . 262 Rail Transport . . . . . . . . 272 8. 3 Problems Related to Potential Trade Routes................. 275 8.3.1 Infrastructural Problems. . . 275 8.3.2 International Problems . . . . 7-79 CHAPTER 9: A TENTATIVE PROGRAM OF IMPLEMENTATION o o o o o 0 286-304 9.11ntroduction.............. 286 9.2 A Tentative Program of Imple- mentation............... 289 9.3 Further Research. . . . . . . . . . . Z95 9.4 Integration of Marketing and Production.............. 303 BIBLIOGRAPHY................ 305 L3 56:0:53 n' F- av Q... o [v ,' Cog: . . ’ “- -S.'.".‘.a‘es o o o a. I...” T ‘u. ‘5'. "~“. : 1 . t.. Co::;us:o:-. Crullap::~= Q. A fiv~‘ ~¢| |. . rt: ‘ ‘I 'V'v, ‘ ~ .\..‘.I . \' ' ...\:) ’ H... . hr“; 0 I g .. U a ‘ ‘ I 1.. ' .3 - §¢4~T0H‘\ \AC' r I r. . -. .. . H- ~\C:Or\:\. v ‘ 71 “1 |‘ i 0-! ra‘h‘1-° .- ~4 A "L A... r, . “5 €9.1- Balance of FOPE' . ‘EN «.50 a; ‘ Dr -- o \‘ g Page 6. 3 Secondary External Flows and Transit Service Potential . . . . . . . . . . . 160 6. 3. 1 Secondary External Flows and theSuezCanal ........ 160 6.3.2 Potential Trade Routes . . . . 161 East-West Routes. . . . . . . 162 North-South Routes . . . . . . 165 6. 3. 3 Potential Increases in Third Country Actual Trade Flows . 166 6.4 Estimates of Transit Tonnage throughTurkey............ 173 6.5Conclusion.............. 180 CHAPTER 7: A REVIEW OF TURKISH NATIONAL TRANSPORT SYSTEM AND EXTERNAL ECONOMIC RELATIONS. . . . . . . . . . .181-211 7.11ntroduction.............. 181 7.2 Economy Description . . . . . . . . . 182 7.3 Flaming in Turkey . . . . . . . . . . 185 7.4 Objectives, Targets, Problems . . . 187 7.5 Turkish Transport System . . . . . . 191 7.6 Foreign Economic Relations . . . . . 199 Balance of Payments . . . . . . . . . 204 ForeignDebt............. 210 CHAPTER 8: THE TURKISH NATIONAL TRANS- PORT SYSTEM -- PROBLEMS AND ADJUSTMENTS . o o o o o o o a 212-285 8.11ntroduction.............. 212 8.2 Some Problems in the National Transport System. . . . . . . . . . . 214 8.2.1 The National Transport System............ 214 Institutional Problems . . . . 214 . . .' .,..9. "' *..b’-“‘ ~ob' 3.1' 3'0 5.? 7 :"~~ J.- .—¢--' 1 O O ...; ie'. 0 \l 3.1. .y. “-0-. ’D .-5. ok- .....a‘ C o O H“. C . .ru .4 U S .K .4“ Wu F. .. 0 A.» .3 ...u m H 9. 0. .Au 6 .J 3 2.. I.“ ‘lh n1. .. 0:0 :4 . ”n..- l I... C . ‘ ‘ ~‘MIAOQOA I 1 .1: ‘V‘n \p- 0; h.o¢.‘ so ‘0 C Q 0 .- ' q C 4... "Q-' l.- oinyfiob U I “oductio ,6 *0. C . In in“ r\ .3 e. A .10 Ill 1... C .. D- I" I0 7. o R .u Pk ~u~ any in!” b A 23. .5. Eu. In” nhn C C “I. iFA m .. 65 h mm as Z 0 [PVC CHAPTER 3: METHODOLOGY . . . . . . . . . Introduction. . . . . . . . . . . Summary of Notations . . . . . Model of Solution . . . . . . . . Goodman-Alker Procedure . . . 3 l 3 2 3.3 Assumptions and Identities . . . . 3 4 3 5 iv Page 67-88 67 80 . 84 CHAPTER 4: FIRST STAGE ANALYSIS: ELIM- INATION OF SIZE EFFECTS . . . 89-128 4.1Introduction............... 89 4.2DataBank................ 90 4. 3 Relationship between Value and Weight 98 4.4 Elimination of Size Effects, 1959 Data . 111 4. 5 Elimination of Size Effects, 1968 Data . 121 CHAPTER 5: SECOND STAGE ANALYSIS: MULTIPLE REGRESSION Introduction. . . . . . . . . . . Operational Data . . . . . . . . Multiple Regression Analysis of 1959Data............ 5.4 Multiple Regression Analysis of 1968Data............ 5 hnplications of the Model. . . . 6Conclusion ........... £11011.” 0 00th 5. 5. 12 9-152 129 132 140 145 149 152 CHAPTER 6: A GENERAL TRADE POLICY AND POTENTIALS FOR TURKEY . . 6.11ntroduction.............. 6.2 Preferential Trade Arrangements and Primary External Flows . . . . . . . 153-180 153 154 4.1 4.2 4.3 4.4 Q ~ ' 2-. '- Oorie‘ s ~3.a.. o,‘f:l':q'c L .'.....U . . . n. r' '1‘“ :‘S s ~\O.\. 1.0-... - Lag. , (111235.89. 1;: '5- '. {'AM f ~I-x-bs ..~.‘. “'- "1 I . . o . EXT-307‘s fro'w; o . . . 13:: o . . . . I‘ ‘N‘Vpo-"JO'3 ya ame‘ers 7". . LEOfenCa 135, g, . I ”110 0531c: :elative .54 I C If“ . JfirJOts Q ar‘5or‘rs LIST OF TAB LES Page 1. l Turkey's Balance of Payments, 1950-1968, in Million $ 0 O O O O O O O O O O O C O O O O 0 13 1.2 Basic Economic Factors of the Region . . . 20 1 Actual Trade Flows, (1959) (Million U.S.$) . 92 .2 Actual Trade Flows,(1968) (Million U.S.$) . 95 3 Exports from Belgium to Selected Countries, 1959. 99 4.4 Exports from Federal Germany to Selected Countries,l959 .100 4. 5 Exports from Greece to Selected Countries, 1959................ ...... 101 4. 6 Exports from Lebanon to Selected Countries, 1959. 102 4. 7 Exports from Syria to Selected Countries, 1959103 4. 8 Exports from Turkey to Selected Countries, 1959................ .....104 4.9 Exports from U. A. R. to Selected Countries, 1959...................... 105 4. 10 Exports from Yugoslavia to Selected Coun- tries,l959.................. 106 4.11 Simple Correlation Coefficients between Weight and Value for Selected Exporting Countries,l959 109 4. 12 Proportions of Trade and Estimates of Model Parameters,l959 112 4.13 Theoretical Trade Flows, 1959 (Million U.S$) 114 4. 14 Ratio of Actual to Theoretical Trade Flows (Relative Acceptances), 1959 (Million U.S. $) 118 4. 15 Proportions of Trade and Estimates of Model Parameters,l968 .............. 122 vii P... ...‘;, -,:-o. 3.1 sinful“ “.24: r ...... 1‘: ‘ Wu...£§, 1"‘ . q 7 P . ..-L: . . Uffiz-5vus\ a.-S.d A Corries, ‘3'} 3.3 Fc-rtsaac' 2:13" P . U ' mm: the Cc 4 V"""~v*. 'v | I ‘h‘i...‘1 ...C(. 1 5 3. ‘ 4.42632! I3 .'..‘ g '. -\ 1 ‘" .H~:EA A #:‘q i '3. . o ..4 .arareter ‘-'a' I.- we JzarQOI-W‘ l U...’ ‘ ' 3&Hel‘ 1'16 I a o I P 1 H \ H .e -o. 9 .. 96". :‘ch- .' \ (,4 ' "' ..... c maize? I r" [\J >..e::ive I” 07* w U ~ L” N H 3 ‘ ‘1‘ .‘I ~ ‘4. '9': e I 1 ~ “‘ T J I o g ‘ . t.a.‘s. viii Page 4.16 Theoretical Trade Flows, 1968 (Million U.S.$). ..... ...... 123 4. 17 Ratio of Actual to Theoretical Trade Flows (Relative Acceptances), 1968 (Million U.S. $).......... ............. 126 5.1 Geographic Distance (Statute Miles) between Countries, 1959 . . . . . ........ . . . 133 5.2 Geographic Distance (Statute Miles) between Countries,1968. ............... 134 5. 3 Ports and Inland Distances to the Economic Centerofthe Country. . . . . . . . . . . . . 135 .4 Locational Index Values for 1959 and 1968 . . 137 5 Parameter Values and Related Statistics of the Linear Multiple Regression Model, 1959 . 141 5. 6 Parameter Values and Related Statistics of the Logarithmic-Linear Multiple Regression Mode1,1959.................. 143 5. 7 Parameter Values and Related Statistics of the Logarithmic-Linear Multiple Regression Mode1.1968..................146 6. 1 Relative Acceptances of Common Market, United Kingdom, and Turkey, 1968. . . . . . 155 6.2 Selective 1968 Cases Comparing Distance with Relative Acceptances in EEC and the United Kingdom.............. ...... 158 6. 3 Potential Effect of Turkey's Transit Service on Secondary External Flows When the Suez IsClosed .167 6. 4 Potential Effect of Turkey's Transit Service on Secondary External Flows When the Suez Ia Open C O O O C O O O O O O O ........ 175 7.1 Socio-Economic Trends in Turkey . . . . . . 183 7.2 Relative Importance of Sectors in GNP . . . . 184 7. 3 Transport System Mileage - Historical . . . 192 (I. III (r! I?“ (-0 v 1.. ,.: n 0 s. ' -- o o G .' - " . v .. .._ 3:5!13. .U.’-- c H . I 33.: -Ciilfiiififi. 1:33:21 1 Bela: . ‘ ‘- I 1 . . It". .. ‘ .::S...t , . a : ' . . "‘Q - . 2.99"?“ . o ‘ 9 . , , ‘. n. ‘ '. 'V' v we .-.!us.. 8 n " I 1...“, I“... _ 313...:u L"4r.~f a. ‘ ‘ '— o¢.!.s: :L .7911. :n‘n .r‘ .- ' ““'§ 2-9.6: ; '2," . , ,. I on S‘arc : Q “If “VEIO 3" '31 3‘“. 104.33» 8.2 8.3 8.4 8.9 8.10 8.11 Transport System Utilization by Modes: 1950-1965.......... ........ Survey of Turkish Foreign Trade by Origin and Destination, 1959 and 1968.. . . . Turkey's Balance of Payments, 1950- 1968, inMillion$................. Turkish Import and Export Price Indices (Paasche), 1956-1965. . . . . . . . . . . . Breakdown of Functional Responsibility in the Turkish Transport System . . . . . . . Transit Charges Collected by Some Euro- pean Countries from Turkish Trucks . . . Turkish Foreign Trade Carried by Turkish Flag (General Cargo) . , , , , . , . , . . , Turkish and Foreign Flag Shares (‘70) of Turkish Imports and Exports by Water (GeneralCargo). . . .. . .. .. . . User Participation in Highway Expenses, 1950-1960 ..... . . . . . . ....... Distribution of Trucks by Age . . . . . . . Customs Dues and Other Taxes (% of CIF Value) on a Selected Sample of Imports . . Number of Legal Documents Connected with Domestic Water Transport, as of July1971 The Development of Turkish Merchant Fleet, l940-.1960............. Distribution of Turkish Merchant Fleet by Age,1960.................. Capacity and Personnel of State-Owned and Operated Shipyards . . . . . . . . . . . . . Measures of Encouragement in the Ship- building Industry at Selected Countries . . Potential Capacity of Highway Networks Serving the Hinterland of Transit Ports . . ix Page 195 200 206 207 215 230 245 246 251 253 256 259 263 264 267 271 277 .. . I - G _. . \ " .1 7.32313. A". i “‘19: the Sm : In IN.) P01211111 .‘Ce'. 3 «:9: it Suez Year. . . . . 9.2 Page Potential Net Balance of Payments Benefit When the Suez is Open (Million $ per Year).................... .298 Potential Net Balance of Payments Benefit When the Suez is Closed (Million $ per Year).... ...... .. ....... .. 300 ‘9 LA, 9.2 3:13:13: of for: 13:11:25 ar.’ 2" .‘..S . . O O O I ' a 365131:e;;¢3- . I h 1.11;: .:a:e :- n cOQUg . . . . . R F - * ’ Cz-E:..e.:‘ Ctr.. a“ I ..‘ .‘ ' A v-e..f.6‘ \;.r'. u ‘1 v 3 vi. . . . a .3! . arjj :, S I" Ci, y‘he . . . . \lxl Nv—I «1‘: 4st» 9.2 LIST OF FIGURES Relation of Commercial and Transport Policies and Turkey's Economic Objec- tives..................... MapofRegion.. ..... Main Trade Routes in the Third Century A..D ............ . ...... Suez Canal and South African Routes in the Twentieth Century. . . ..... . ..... A General Graph of Interaction Represented by(2-l) .............. ..... Interaction between Transportation Costs, Time, and Psychic Distance and Trade Size ............~......... Summary Interaction of Variables in the TradeMode1................. Proposed Transit Trade Routes through Turkey 0 O O O O O O O O O O C O O ...... Turkish Transport Network, 1963 . . . . . Practical Capacities of State Roads as of theEndof1960 .............. Turkish Highway Traffic Flow, May 1961 Import and Export Price Indices (Paasche), 1956-1965.................. A Tentative Program of Transportation Development (Issues Related to Institutional and Economic Problems of the Overall System.................... A Tentative Program of Transportation Development (Issues Related to International Problems of the Overall System) . . . . . . xi 24 25 4O 49 66 163 194 197 198 208 290 Z91 .. .eztatzve :5 rt ‘ I “7“ Qaw-e'. U ‘-~'vnno Iu‘ . e “M- 'ms C “ lllll . . 9.3 9.4 xii Page A Tentative Program of Transportation Development (Issues Related to Other Modal PrOblems) O O O O O O O O O O O O O O O O O O 292 A Tentative Program of Transportation Development (Other Related Issues) . . . . 293 _,...—-"' lw‘r’ ’ '- » ol- 5“. Tzis s:.:'.- a'a‘. .. and 1qu 7.21:2; '1“. 1111;023:135 a' 1" O u.- couzties aw-r‘ -—.. - a ~ n..fl rh- run I ,. 92‘, {CV .., a o I S.“ ‘r 5“ V 4‘ ‘ CHAPTER 1: INTRODUC TION 1. 1. The Subject Matter of the Study This study evaluates Turkey's transport planning and policy making with respect to the (i) trade of Turkey with countries around it, and (ii) trade between the countries around Turkey. In this context we can define three types of trade flows which will be consistently used throughout the study: (1) Domestic or Internal flows. These flows origi- nate and terminate in Turkey. (2) Primary external flows, which involve the flow of goods originating or terminating in Turkey to and from other nations. These flows involve the foreign trade portion -- imports and exports -- of Turkey, entering in the balance of payments. (3) Secondary external flows or Third country flows that both originate and terminate in countries u -‘. . 2:52: of . -- asazrade 33’» are of lesser ma rta' 15625113211 trazspo :: tar; the: the prima :1; ‘ are tr: :11: main co r... great 2.52m; of six". or :egzcra‘. transgr :: 1L ‘ «.5 3:19 ‘8‘; . ‘ ad.'.,_- 3 a Leta S a:."‘- A. “h ‘dxf‘. ‘ 2 outside of Turkey and could potentially use Turkey as a trade gateway. At first sight it may seem that the secondary flows are of lesser importance than the primary flows in shaping the national transport policy of Turkey. Even more impor- tant than the primary flows might be domestic flows which are not our main concern here. As a matter of fact, a great majority of studies which make up the core of national or regional transport planning and implementation efforts heavily emphasize domestic flows. Very few studies take into account primary external flows in addition to domestic flows. The former orientation -- embracing domestic flows only -- may be termed the Classical approach to transport planning, because it assumes a closed economic system entirely isolated from its external environment. The latter approach, embracing domestic and primary external flows may be termed the Modern approach to transport planning. As opposed to the Classical and Modern approaches, the orientation advocated in this study can be termed the Systems approach to transport planning, for it takes the View :11: .1. trace 1:1', with: the area of inte r primary 5;: imestic 35 a While ”:19 v3 1'. o. r;.\ viewpoint that trade interactions among the countries within the area of interest should also be relevant as the primary and domestic flows in shaping transport policy. In other words, the intra-, inter-, and extra-flows taken as a whole make up the complete system of interactions for transport planning. Appropriately enough, this approach is termed "through transport systems encompassing infra- and extra-structure. "ll As already stated, the domestic flows will not be emphasized in this study. This may be a focal point of criticism, for the absence of nodes and edges that make up the domestic subsystem of Turkey does not complete the description of the entire system of interactions. However, the railroad connectivity index for Turkey computed by K. J. Kanskyz‘.’ shows a value a little greater than unity which is regarded as a complete simple connection sufficient _1_/ Hazard, J. L. , MTA 841, unpublished lecture notes, E. Lansing: Graduate School of Business Administra- tion, Michigan State University, Spring 1969. _2_/ Kansky, K. J. , Structure of Transportation Netwo rks, Research Paper No. 84, Chicago: Department of Geography, University of Chicago, 1963, p. 42. is serve é: stic f1. '1 u u . q {102 :1. 333.2513 1.; WE are ext: 3.6.1” 31:110-: M ‘Q‘ ~-'-. I“ do...es..~c:1..: v.1 '8' 1. the ca'="‘“‘ 1" U B f-douo‘ U I 9 ; {I :~~ . 11.5.5 0. .r-..~.rv an: 4 to serve domestic flows. The present Turkish transport network has probably given mo re than sufficient considera- tion to domestic flows; besides, interregional flow data are extremely difficult to find in Turkey. Therefore, domestic flows will be disregarded in this study. Later on, the capability of the network will be evaluated on the basis of primary and secondary flows. "than _ ', ‘ ‘, 1:] 'l— ..__. deselcptret'. 911:: and I 01' planned curt-mic : 1357, I". Stxfn' F.“ . Pt" ‘4' pengeme :15 the 'J Cate HM : kw“: and s 0"“ . L“Hlem€::;-q fl‘ . 2‘ “5 if .a ‘1‘, '5 a lne betctfi Fi“_p l . 2. Problem Statement The 1961 Constitution provided for a Turkish development plan and by 1963 Turkey had entered an era of planned economic development. The First Develop- ment Plan embraced a five-year period from 1963 through 1967. The Second Five Year Development Plan's time perspective was the period 1968-1972. Both plans expli- cate economic and social objectives to be attained by implementing detailed annual programmes and projects. The Second Five Year Development Plan states the general economic objectives of Turkey as follows: " . . . to achieve a rapid and sustained increase in per capita income, . . . to achieve a balanced development between various regions and income brackets, . . . and to attain an efficient and stable improvement in the . . . economic structure. "2, One of the targets set in the Second Plan in order to attain the above economic objectives is a 7% annual growth in GNP. In addition, the Plan calls for an expansion in the industrial sector, to make it the leading sector of the }_/ State Flaming Organization, Second Five Year Development Plan; 1968-1972, Ankara: Central Bank of the Republic of Turkey, 1969, p. 13. C eccrsml fl g. . u =' .. .- .0\.‘ he r,“ .K. “to... I v , ‘ 3.8315 “ TELCC '9' b 330 b ,1 .- u, . Thezrstxr .u: as . increase‘ - “‘65:..er.:' grew: mate. 7:: se - restrict. economy.£/ The Plan identifies three structural obstacles -- problems -- which restrict the attainment of these targets._5_/ The first obstacle is insufficient domestic savings to meet increased investments necessary to support the chosen growth rate. The second obstacle is entitled "institutional impediments restricting development" and groups problems facing agricultural and industrial organization and efficiency. The third obstacle is import capacity as a means of providing an ample supply of raw materials, component parts, and equipment from foreign sources. When the second target, industrialization is considered the importance of this last obstacle can easily be appreciated: Import capacity must be increased to finance machinery, equipment, and raw material purchases from abroad, all of which are needed for the pursuit of industrialization. Import capacity falls within the general area of external economic imbalances within which foreign trade and balance of payments drains 3] Ibid., p. 75. _5_/ Ibid., p. 46 ff. avestmt-zafizal -- f I ¢ . g o “v" vp VII-to'nn \v-flu- U8: Lac-“u“... 5 ‘ ‘ 00“ ' . ' ‘ o ,I “Q. Q 9’ ~ ‘0‘ 5.91.! a. ...c 1:: -: mcrease parallel to m c t ' ' ‘3. J: “51:3. fault? .1 ' ,. ‘ " “ mu‘easec b\ 23 traée w- 7 investment capital -- needed for purchases from abroad -- thus undermining industrialization and economic develop- ment. In spite of the important role played by external trade and services in attaining the targets set, this area did not increase parallel to national income. "Hence, its effect was to restrict rather than to induce economic develop- ment."§-/ For example, between the years 1962-1966, GNP increased by 29. 5%, whereas the volume of foreign trade increased by only 20. 8%. As a result of this discrep- ancy foreign loans were necessary. However, since Turkey borrowed heavily in the past, 55% of loans secured from 1962 to 1966 were used for payment of the principal and interest on former debts. Therefore, aid in recent years has been insufficient to remove the third obstacle, or to put it differently, to provide the necessary funds to increase the import capacity. With this brief introduction, a formal statement of the problem can now be made: The proposed research recognizes 9/ Ibid., p. 47. ie “ rd ‘tr' :al in 0L3» : J. .' 1.‘ ' chances .. mar. c “lb. 66311;?“ e" “ ire " the cc:ce;.:..:' rare, “in" C’Ii‘zer‘ial: 0:QC""‘u-;n '2‘: ‘ u'em the third structural impediment -- external economic imbalances -- which drains capital and restricts the development of the Turkish economy as the central prob- lem to be mitigated by bringing external dimensions into transport planning and policy making. Figure l. 1 gives the conceptual framework within which transport and related comme rcial policies contribute to the attainment of equilibrium in external economic iInbalances, hence mitigating the structural problem and easing the attainment of general economic objectives through meeting established targets. By bringing an external dimension to Turkey's total transport system a pioneering attempt will be made to strengthen Turkey's participation in regional trade. Feiair: of C 7‘ pp Q .R.. ' u..“. \\\ .\ . . J ~~‘~~ “‘— l "‘h.‘ n': ' .n U .1 b: 60,1,” 1. N A '~;C1es\’ C L‘ Figure l. 1 Relation of Commercial and Transport Policies and Turkey's Economic Objectives SYSTEM LEVEL l 683mm.“ —->~ SOCIALlé- ->I ECONOMIC <---— POLITICAL Objectives f _ :1 Targets ) Growth] Industrialization 1n GNP L f l l . External Econ. Institutional Obstacles i Savmgs Imbalances Impediments ' (Increasing . ' import capa- - city needed for l I industrializa- Ltion and growth.) Policies Commercial _ Transport 7 i N Policy Policy L I Programrnes—J l Projects—9. 1.3. Tram: r: .3”. —‘_-. no. .‘)_'.;h., ..a..- ..-¢.o\ I- . n 0‘ Q 9 5.. s... . . b. also: 26.631 ' ..o\. o. u .. . ‘ . “P - ‘6‘- I.‘ - —0 JH l). ..s.\&. .....e :6. - IA '- F. I a.-. .460?! 15 a: e>;:(-' «by ‘ ..- O“. t. . ~. A numb :IO ' ' '.9"‘9“u ~02 kt.dt.,g_’ “ .s E;.:, from 9' 2 . :‘E :‘"‘;O“~ew‘ -~u-. ..‘. fl w.;."‘ .3 so”; " ar." ‘«e 32,.“ . Q J E 10 l. 3. Transport Policy and Commercial Policy "Transportation is not an end in itself. "ll A transpor- tation network which does not facilitate economic, social, and political inte raction between spatially distributed places and people is an expensive, unproductive investment in any national budget. Insofar as a network stimulates increased interaction, it is gene rally accepted that a benefit is derived from the investment. Taking cognizance of this important principle, the purpose of the study is to evaluate the trans- port system of Turkey not for the sake of achieving perfection in the system itself, but for its contribution to the attainment of other -- non-transpo rt -- objectives. This study is con- cerned with the attainment of economic objectives. Other objectives, such as political, social, cultural, are important but are beyond the scope of this study. In evaluating primary and secondary external flows, with respect to Turkish transport system implications, _'_7/ Manheim, M. L. , ”Principles of Transport Systems Analysis," Papers of the Transportation Research Forum, 1966, reprinted in F.H. Mossmann, Transpor- tation and Distribution Systems, mimeographed lecture notes for MTA 810, E. Lansing: Graduate School of Business, Michigan State University, undated, pp. 9 ff. " . . ‘n' o F ' ..'. 1:15 Shel-‘3 $.23 .10. 6. . g Q. cernercza. 1.1: . 0 7‘9“. -vi--!‘ C-n‘n- l.¢..:3...d... k... 0 With each 2': £311”. 52‘: ced‘: .P t5. “.5 595m?“ ‘ - P‘N‘... : ‘“ \“‘~su\ 9. cube cited as a: i flic‘ W «- “‘6‘ .5 a rec: P" CJ::-.. ‘, 1* ‘ kt? ‘ 11 this study does not attempt to consider transport policy in isolation. Closely related to transport policy issues are those topics which fall within the general framework of commercial policy. As clearly indicated in Figure l. 1 Transport and Commercial policy issues closely interact with each other in solving the problem defined in the pre- ceding section. The chronic deficit in the Turkish balance of payments can be cited as an important part of the general problem which offers a recent example to show the importance of come rcial policy measures. One of the important areas of policy making in alleviating the problems in the balance of payments is commercial policy. As explicitly stated in the official planning document of Turkey, the area of balance of payments is one of those areas which deserve serious consideration. "One of the most persistent and difficult problems confronting the Turkish government"-8-/ in the post-W0 rld War II era has _8_/ Krueger, A. O. , "Some Economic Costs of Exchange Control: The Turkish Case, " The Journal of Political Economy, Vol. LXXIV, No. 5, Oct. 1966, p. 466. been 3531:: Ceii 1.1 gives the £91.11} in. 9.5.x :23: u. 1 on ' ' We, "awn“: .- _L.m0vI-'.‘ lem, gm 72.7.6.3 '* a t. wax: are czzsiiere 12 been a chronic deficit in the balance of payments. Table l. 1 gives the details of Turkey's balance of payments in the period 1950 to 1968. When confronting a deficit balance of payments prob- lem, governments have traditionally emphasized measures which are considered within the domain of trade policy. Such measures are especially centered around either expanding exports, or restricting imports, or both. Con- sidering the importance of foreign trade in the balance of payments accounts, such traditional measures seem appro- priate. Turkey does not constitute an exception to this tendency. A cursory review of Table l. 1 clearly shows the important role played by exports and imports in arriving at deficit balances. Therefore, it was, and still is, only natural for Turkish development planners to adOpt a variety of measures to restrict imports and encourage exports. However, the net balance of invisible items, especially after mid-1960's show a significant gain in receipts which somewhat offsets the ever-increasing deficit balance of foreign trade. One item of interest under 2. .. “..‘ ‘1 ,. -.\‘ . s. t; _ ll! . 0 \ r1 2 . pHd «I- ‘h c\ s Q . e \ ‘~ A“ 0‘ O O O o 0‘. ..~ ~ . W 4 . C 5 .3 . o . . . \.. x.— .s .3 a: . \. \.... . . n t .. o . \Ifi .\ . a c .1.— l s .\.. .1 a y .s. g. 9 I. mi. .Q- .I. \I \ ‘1: .‘. H. 3. \k 1. Q \. 3. it -n\ g «(1. u h 2 a-..“ -1--- --: 4.233. . . r C . w t i ll -.\ g . «.7 «3 .3 s e . s . \a a \L‘- a. .5 .‘e O Q 1 “lb n. ..' 3 At“ Pb ) F O Q Q 0 3 a 4‘ n \u A! a "L f . . . . . . . a. 3n . .3 .3 cc .3 a t? .1 .3 \K I .3 3 7. w. 4. «D .3 :4 .e. 3. I. 2 as. Q .3 T A. .2 .. P. \A rt. 11 C a. . .{a \ \J . r. .3 K. ..‘. £3 4“ 1%. pk. e Tn...” E «I; :3 a} a.) .3 13 .3 3 a). ..J . C 1. V l I\ llllll ..IIII 'I\ .III \ll‘il‘lill il\s\.llll|ll. Lilli.\lnl ..l\ I l ‘1...» m ..m a-.. .2 ..x ..w. ..n. ..m E s 2 f S -2 . as n... l. «J . - . . .\a :4 >. . r.. _ r. . a. . uh: I ll. . ad”. .J. ”.H. .ad. «4. do. 31 Q ..‘ ~34 A«‘ .4 We“ a.“ e .d n“ .u 3. \— nc 1 HI . .Iq...i.. .- ~ .. . . . o . Q ~ . a . S Table l. l 13 _T_ugkey's Balance of Paymentg, 1950-1968, in Mil. $ ReceiLts Expenditures Balance Year Invisible Invisible (+) Surplus Export Items Total Imports Items Total (-) Deficit 1950 263.4 18.9 282.3 251.5 72.8 324.3 - 42.0 1951 313.9 36.4 350.3 353.9 80.6 434.5 - 84.2 1952 362. 9 42. 5 405. 4 488. 7 99. 2 587. 9 -182. 5 1953 396.0 35.2 (431.2 468.3 104.2 572.5 -l4l.3 1954 334.7 30.2 364. 9 421.2 102.8 524.0 -159. 1 1955 313.3 82.8 396.1 437.9 88.5 526.4 -130.3 1956 305.0 104.5 409.5 358.5 94.6 453. l - 43.6 1957 330.8 124.6 455.4 345.8 140.3 486. 1 - 30.7 1958 249.2 88. 9 338.1 284.2 138. 0 422.2 - 84. 1 1959 362.6 84.7 447.3 433.1 141.3 574.4 -127. 1 1960 335. 9 103. 5 439.4 426.7 134.5 561.2 -121.8 1961 365.3 119.4 484.7 448.2 159.5 607.7 -123.0 1962 398.5 120.9 519.4 566.9 187.6 754.5 -235. 1 1963 395.4 127.3 522.7 588.5 189.7 778.2 -255.5 1964 433.0 143.0 576.9 475.0 190.0 665.0 - 89.0 1965 479.0 202.0 681.0 505.0 206.0 711.0 - 30.0 1966 494.0 262.0 756.0 639.0 226.0 865.0 -109.0 1967 530.0 235.0 765.0 608.0 244.0 852.0 - 87.0 1968 530.0 1 130.0 660.0 780.0 68.0 848.0 -188.0 Source: 1950-1967 data are taken from International Monetary Fund's Balance of Pagnents Yearbooks. 1968 data are taken from Turkey, State Planning Organization, Ikinci Bes Yillik Kalkinma Plani; 1968-1972, 1969 Yili Prog- rangL (Second Five Year Development Plan; 1968-1972, 1969 Annual Programme), Ankara: T.C. Merkez Bankasi (Central Bank of the Republic of Turkey), 1969, p. 40. invisible :ezeipts is 1' thousands a! furl is'r. t:a:..fers created 1. 19:8, respecfix-eiy, the luriis‘; gave :22.- safizgs is m: a sub ' mercia‘. pelicy. 1" me staid be quite- 0. M.( 1&1... me the a; l4 invisible receipts is the foreign exchange transfers of thousands of Turkish workers employed in Europe. These transfers amounted to $93 and $110 million in 1967 and 1968, respectively. Undoubtedly, the measures taken by the Turkish government to encourage the transfer of labor savings is not a subject matter of trade policy, but mo re appropriately, it is a combination of labor policy and com- mercial policy. The lesson to be learned from this experi- ence should be quite clear: Measures outside trade policy can be quite significant in mitigating balance of payments deficit. Within the area of balance of payments, another invisible item which is of particular interest to our study is transpor- tation. Transportation showed an ave rage net deficit of $48.4 million during the period 1961-1967. The ave rage deficit of freight, travel, and other transportation, combined, during the same period is $57. 8 million. A review of the balance column in Table l. l for the period concerned will indicate the significance of transport deficit in Turkish balance of payments . =11 .|.IXI I‘m 14 \‘né-s - v) "' u .\:"‘ . 6-. . ‘ n 4 W. Suggesizzs are. takes the unseen; s mm; {gable of 12g suggev‘ue of t... as“... D: I . e'C'Z 9" F‘ ' :‘ M 4515 we Lero\.A Ills Csuzcil is heade the executive braw‘ ..‘ 4:. . ml weed? mx'crlw: 15 l. 4 National Respondent Suggestions are of no practical value unless some authority takes the necessary steps to implement them. The only authority capable of successfully implementing the result- ing suggestions of this study and properly coordinating the efforts is the Council of Ministers of the Republic of Turkey. This Council is headed by the Prime Minister and makes up the executive branch of the State. The conclusions reached will directly involve the Ministry of Transport. The newly established -- May 1971 -- Ministry of External Economic Relations along with the Ministries of Foreign Affairs, Customs and Monopolies, Finance, and Commerce will also be within the scope of conclusions and recommenda- tions of this study. L l I"! ..'.W 1.5 Tie Feiirr. and As will be explai' cctr.pcsed of two par‘ the region 02' 1::e ms the first a::‘ eithe r three criteria: 121.1" 16 1. 5 The Region and Years Covered As will be explained in the next section, this study is composed of two parts. For the first part of this research the region of interest includes those countries which meet the first and either the second or third of the following three criteria: (1) Geographic distance between Ankara, approximate economic center of Turkey, and the border closest to Turkey is less than 2, 500 miles, and (2) Total trade flow between Turkey and the country in question is at least 3,000 metric tons, or both Turkish exports to and imports from the country are greater than 1,000 metric tons each, or (3) The country in question trades extensively with region on opposite side of Turkey, so that Turkey constitutes an intermediate location and possible gateway. The first criterion establishes a proximity constraint in order to account for the fact that trade facilitating mea- sures will have a greater effect on accessible, rather than ' I '"u: A 1 L hill! 2:- new a: iistazt ‘ :eig'rfao rs . volume of trait arm: ts inchvie a means-Q: 11:. trad 1.3: 212.3; tiles. rte seared c rite- N - .. I was A ‘r I “heums “wage .‘ ”V‘ be I 1. w. ..E “.351 “(£21 931’." . I . g . 1a- eUZx-u ~L: ._ ,mé N S crit- 17 on distant "neighbors, " because of the greater expected volume of trade among accessible "neighbors. ” In order to include a reasonable and manageable number of countries in the trade flow model, the distance is limited by Z, 500 miles. The second criterion eliminates from the model those "neighbo rs" whose trade with Turkey is relatively small. The most recent export and import figures (1969) are used in applying this criterion. Figure 1.2 shows the countries included in the region. The following countries met the first criterion, but are excluded because of their failure to meet the second or third criteria: Aden, Albania, Algeria, Cameroon, Chad, Ethiopia, Kuwait, Iceland, Luxemburg, Morocco, Muscat and Oman, Niger, Nigeria, Qatar, Somaliland, Sudan, Tunisia, and Yemen. All countries in the region except Afghanistan meet the second criterion. Afghanistan is included in the region because it meets the third criterion. In 1969 Turkish imports from the region amounted to 1 .' "me L- '. J. ..‘: "T‘W‘vtta s-A «t v. J."‘ . U “ I .‘FVA.~ A! “S:‘A‘:§Q I, I 7'...“ kt A :b'. ~a . ‘ ' ' I. A fl‘.1‘ . V ‘3‘“ I ‘ I ‘ I“ -‘v-. I J‘s‘k~a I U \ 4| virms I s . . n Ze‘.- .. I I-~‘- ~ -, 11‘ - ant”; p—N -. \ Q ‘ “ ‘! ~ ‘ U.‘ . 4. - A H ' w? . ‘ "‘\‘ 1‘ 'b.‘ ..‘." s. ‘ - ..‘ .. N ~~“:_d ‘1' ' I . h. . .«Q‘e I ' P I‘. Jr . LIST OF COUNTRIES: 1. 2. 3. 4. S. 6. 7. 8. 9. 10. 11. 12. Figure 1.2: Map of Region Afganistan Austria Belgium Bulgaria Cyprus Czechoslovakia Denmark Eastern Germany Federal Germany Finland France Greece ‘ 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. 23. 24. Hungary Iran Iraq Ireland Israel Italy Jordan Lebanon Libya Netherlands Norway Pakistan 25. 26. 27. 28. 29. 30. 31. 32. 33. 34. 35. 36. 37. Poland Portugal Romania Saudi Arabia Spain SWeden Switzerland Syria Turkey UAR (Egypt only) U.K. U.S.S.R. Yugoslavia 18 .- ”(an , ' I 4 Vi xx 7:74. - ' ' ‘: ,hgh.bb o I . 9 Q «Q n .. Q .0 .28 39;": 3.1.0...’ ' -9 .2856 pQTCEZERS 3' ‘ 1.. . 792.5: i.‘; b j 1H. . fiu- ‘ L... ‘HGL 1"). in“ Ami“ ' .. , a,6..cm14,! , .9. 19 90.2% of total Turkish imports, and exports from Turkey to the region amounted to 91.4% of total Turkish exports. These percentages are on the basis of weight. Value figures are comparable. Two years are selected for constructing the trade flow model: 1959 and 1968. This is done in order to examine major shifts over time and the effects of the closed Suez Canal on the pattern and magnitude of trade. Table 1.2 gives the basic economic factors of the region, both in magnitude and in relation to the world in 1959 and in 1968. The study will establish an econometric model of the trade flows between the 37 countries for these two time periods. The years 1959 and 1968 are selected in order to examine major shifts over time and of the closed Suez Canal on the pattern and magnitude of trade. The year 1959 is selected as a year appropriately displaying an active trade route through the Suez. Another reason for selecting 1959 is because it is gene rally considered a ..u p z- "kc“kn ..- . .... __ _ M“ __. . “‘ u; ' \‘n. '5». C- . i ' i m I; l‘ . {Q u- . ‘ "m N o’ . .j V Q 5' ‘ i. u, |_. , ‘ d A .z . to. . n \ ‘1 i I . . ‘ A ., a Q ‘l a; " ‘ ; I ”1x: -. \ . ' ‘ ,1 ‘ . .. ‘ . . ‘ s 0" . a . r .1 . 1 . ..~ ‘ _ b - .. . __ - ‘ -~ -,\ L ‘a. "k. . v ‘ ‘8 “\'~ 5... ‘1 ‘ 1 'i‘ . _. 1. ,‘ ..‘“ Q '4 ‘ ‘ _ l- ‘. ‘ ..' .I v on- Table 1. 2 Basic Economic Factors of 9e Region 1959 1968 Country Population Area GNP “06 US 5’ Real GNP Population Area GDP GNP at market GNP per per capita“) prices capilaiSl 110% L103 sz) Nominal Real Q06) 103 szl L106 us 51 Aighanistan 12.60 650.0 720 1,440 114 16.10 647.5 1.04021 1,2032/ 80:/ Austria 7.05 83.8 5.500 7,870 1,116 7.40 83.8 8,423 11,350 1,544 Ielgium 9.42 30.5 11,500 14,150 1,502 9.60 30.5 18,106 20,156 2,154 Cyprus .57 9.3 270 380 667 .60 9. 3 387 438 704 Denmark 4.55 43.1 5,500 7,320 1,609 4.90 43.1 11,979 12,394 2,545 Fed. Germany 54.90 248.0 59,000 84,370 1,537 58.00 248.0 116,025 132,700 2,201. 17131.88 4. 39 337.0 3,900 5,620 1,280 4.70 337.0 7,103 8,009 1, 708 France 45.10 551.2 53,000 63,600 1,410 49.90 547.0 109,786 126,623 2, 537 Greece 8.26 132.6 3,030 4,850 587 8. 80 131.9 5, 9602/ 7,1552/ 8132/ Iran 19.70 1,648.0 2,350 3,530 179 27. 30 1,648.0 8,059 7,960 295. lraq 6.95 444.4 1.060 1,480 213 8.60 434.9 2,4032/ 2,1719/ 2572.1 lreland 2.85 70.3 1,740 2,260 793 2.90 70.3 2,496 2,981 1,024 1.1-5.1 2.06 20.7 1,580 2,210 1,073 2.70 20.7 3,598 4,005 1,459 ltaly 49.10 301.2 29,000 41,760 849 52.80 301.2 66,299 74,786 1,418 Jordan 1.64 96.6 200 300 183 2.10 97.7 4952/ 5759/ 2822/ Lebanon 1.61 10.4 500 750 466 2.60 10.4 1,196 1, 336 518 1.115,. 1.17 1,759.0 90 140 120 1.80 1,759.6 2,133” 1,8652/ 1,0732/ Neti'ieriads 11.30 32.5 10,200 15,810 1,399 12.70 33.6 22,472 25,229 1,980 Norway 3.56 323.9 4,150 5,350 1,503 3.80 324.2 8,192 9.021 2, 364 Pakistan 91.00 944.8 5,200 10,400 114 109.50 946.7 14,203 15,287 140 Portugal 9.00 92.1 2,170 3,470 386 9. 60 92.1 4,535 5,009 529 Saudi Arabia 6.04 2,149.7 1,155 1,732 287 7.662’ 2,149.7 1,339. 2,0142’ 2632/ Spain 29.90 503.5 9.400 15,040 503 32.60 504.8 23,466 25,200 773 Sweden 7.45 449.8 11,200 14,560 1,954 7.90 449.8 23,003 26,250 3,315 s-wluerland 5.26 42.3 7,900 9,880 1,878 6.10 42.3 15,566 16,931 2,754 Syria 4.54 184.5 770 1,160 256 5.70 185.2 1.242 1,425 248 Turkey 27.00 780.6 5,900 9,880 328 33.50 780.6 ll, 34? 12,750 380 U.S.S.R.}J 300.0921 6,560.6 209.9715/ 251.9655/ 840 281.10 6,560.6 370,1791/ 444,2132/ 1,5802/ U.A. R. (Egypt only) 25. 3o 1,000.0 3,700 5,550 215 31. 7o 1. 001. 5 4. 9892/ 5. 7362/ 184.:- U.K. 52.00 244.0 67,000 87,100 1,675 55.30 244.0 86,971 102,875 1,147.1 sla a 10 1.0 715 0 5,300 8,480 466 20.20 255.8 9.0311/ 14,4501/ 7151 Total Re ion 7:37.06 20,000.11 522,956 181,277 930 862.20 19, 991.8 --- --- --- ‘rom World 2,900.00 135,119 .0 1,223,000 1,484,205 511 3,483.00 135,767,o --- --- --- 1. outcltonw World 7.5.1: 4.0 47.6 45.9 --- 24.7 14.7 Source: I959 population and GNP figures, except USSR, are taken from H. Linnemann, An Econometric Study of International Trade Flows, Amsterdam; Nurth- Holland Publishing Co., 1966, pp. 220-222. for Underdeveloped Countries," The Review of Economics and Statistics, 1959 area and the entire 1968 data, except GNP figures for USSR and Yugoslavia, are taken from United Nations, Statistical YearbookJ I960, mation. 1959 population and GNP figures for USSR are estimated from P. N. Rosenetein-Rodan, "lnte rnational Aid Vol. me, May 1961, pp. 10711. and 1969, respectively. USSR and Yugoslavia figures for 1968 are estimated from corresponding data {or 1959. note 1] for Yugoslavia. Notes: _l_/ Including Bulgaria, Caechoslovakia, E. Germany, Hungary, Poland, and Romania. See note El below for details of this cell. F‘nr details, see note l/ for USSR and y [959 USSR population figure is derived by applying a 2% rate of population growth to 1961 population figure given in Rosensteln-Rodan, gp. £1_t. . p. 118. Nominal GNP estimates, figures for Albania are excluded. Real GNP is found by using a conversion factor of l. 20 given by Rosenstein-Rodan. ll U$R 1968 GDP and GNP at market prices figures are derived by applying a weighted average growth rate to 1958 GNP figures. Ave rage annual rates of growth of real not material product for 1960-1968 (ri) reported in United Nations, Statistical Yearbook, I909 for European USSR and the six Cum- munist countries in Europe are multiplied by each country's GNP (Y1) and the average annual growth rate is computed by 1 z ngi w=i=l The value of w for l960-l968 turned out to be 6. 5%. 7 i3“ 1', = Yo(l+w)“ wherenx‘). 1959 Nominal and real GNP figures (Yo) are then used to arrive at 1968 figures (Y1) _{I For Yugoslavia the value c! v: reported by U.N. is 6.1%. The same method of estimation described in note ll above is used in estimating 1968 GDP and GNP at market prices figures for Yugoslavia. 2] For 1965. 2! For 1967. .. .. 0’ . 20:21:11 1113..“ .-‘-.. studies alreaiy 01:01} 11:31:11, 1. Thing» , 17.! 12.125— 1:320:11: :~ ‘0 sai: 51:11: 1:53. '9 43.65 3; {he ...- 4..£‘. . Var; 2 1 “normal" year.2/ Also, there are a number of econometric studies already published analyzing the trade data of 1959. Notably, J. Tinbergen,}.gj H. Linnemann,ll_/ and K. Pullia- ninen's-l-E-l econometric studies of world trade and H.S. Cheng'slé/ study of elasticities and propensities in inter- national trade use 1959 data. Therefore, the results of this study can be compared with any of the above in order to gain further insight as to the effects of the explanatory variables on the magnitude of trade between a pair of coun- tries. However, the following differences must be kept in mind when a comparison is done between this study and the above econometric studies: 2/ Linnemann, H. , An Econometric Study of International Trade Flows, Amsterdam: No rth-Holland Publishing Co., 1966, p. 57. _1___/ Tinbergen, J. , Shaping the World Economy: Suggestions for an International Economic Polig, New York: The Twentieth Century Fund, 1962. _l_1_/ Linnemann, 92. _§_i§_, 12/ Pullianinen, K. , "A World Trade Study: An Econometric Model of the Pattern of Commodity Flows in International Trade in 1948-1960, ” Ekonomigka Samfundets Tidskrift, 1963, No. 2, pp. 78 ff. 1}] Cheng, H.S. , "A Collection of Statistical Estimates of Elasticities and Propensities in International Trade, " Stafffapers, Vol. 7. 5.31222: 94:: 13': T21 area c; (3' 721:1 are "f. it. each 5:1; ée't.E1;ped ‘__‘ (1) (2) (3) (4) (5) The reasons: (1) 22 Some of the studies above, especially the one by K. Pulliainen, examine the trade flows over a number of years, thus establishing a long-run dynamic perspective which is lacking in our study. The area covered by each is different. There are differences in the variables selected in each study. For example, the locational index developed and used in this study is not used in any. The analytic methodology followed in the first pa rt of this study is not the same as those followed by the above studies. This study is mainly concerned with transport planning and policy, whereas the others are gen- erally exercises of predicting trade magnitudes by a set of independent variables. year 1968 is selected mainly for the following two It appropriately depicts the shape of the trade without the Suez Canal effect on routing and trade compo sition. f It. "s' O'.‘ 9" "1 "19”"! n. a) 7 . 1. . 17." 2111511 :1; - 2....-. ., atkh.:.e to ’ O I 1 9 .I-n‘ ‘3 0‘ ~~‘s‘a€‘s I 7‘ a‘;'." s 1 C‘.‘“' 90 Or “a: h“ ‘.. \12’ fie :e‘z‘s- up. EO-loa ass-g -. l 9‘». _ .11 ..111152-15. p mestb ‘-.--. ..: l~a 4.5. ‘ mt 65 1‘» .h .~“0Ylhh ~- 23 (2) It is the most current year for which reasonably accurate trade data exist. (3) It provides a sufficient span of time to reveal trends. In addition to the economic dimensions given in Table 1.2, the region made up by the 37 countries is of interest in other respects. First, the region contains one of the most backward countries in the world, Afghanistan, which is located in one of the most isolated areas. The Pamir Knot which extends inside the Afghan borders is known as the wo rld's "quintessential" natural barrier to trade.l’_1./ Secondly, "The Cockpit of Europe, " the area of Low Countries toward which trade flows heavily concentrate, is also within the region of this study. It is not surprising to note that the level of economic development in the "Cock- pit" is one of the highest in the world. Third, as can be seen in Figure 1. 3, the region selected, although made up of countries displaying large economic differences, let alone political, social, and cultural gaps, _l_{l_/ Wolfe, R.I., Transportation and Politics, Princeton: D. Van Nostrand Co., 1963, p. 15. A \.A I ea lhi Trait R-~ 24 Figure 1. 2 Main Trade Routes in the Third Century A. D. 9.— Roman d- '— — Chinesé ’— 4- ------ Levantine Source: Woytinsky, W.S. and Woytinsky, E.S., World Comme rce and Governments: Trends and Outlook, New York: The Twentieth Century Fund, 1955, p. 6. ..5 Figure 1. 3 Suez Canal and South African Routes in the Twentieth Centur Source: Ibid.. p. 437. 1:2: 1213 312:3; ele- Iurkey, b112,: the a: region, had 511: 31'. R7323, 232 1.178 :1; 1125110 1111:1510 rit' To 1: 'o“‘el C3377 Quilt; a - - ‘e‘.ew of 1.1 Ce.- ca‘? 6 A N. v- , t _ \ H6443 1:19 o,“ h. $50 99 ' 1 .Ovt‘neS am; v I ‘4 ‘0.“ 9 3 1d .137}. (GR, of .1 , .L . “"9151... .. ta (3. valleb ‘ LOaS‘ :9 g is! A 26 contains a heavy element of trade in its ancient ancestry. Turkey, being the approximate geographic center of the region, had been an important transit depot where Chinese, Roman, and Levantine trade rs met and bargained. In con- trast to the historical grandeur Turkey enjoyed in the world trade, a brief review of Figure 1. 3 reveals that Turkey is no more in the center of East-West trade, but rather stands outside of the major East-West trade routes. To some, comparison of Figure 1. 2 with Figure 1. 3 may seem meaningless, since such an approach involves a review of 17 centuries of world history. However, one cannot deny the impact of two phenomena, namely, the discoveries and the Suez Canal on shifting the center of world trade considerably away from the geographic center of the region. The important point that should be raised he re is that a diversion in the trade center has occurred due to a shift from over-land to deep-sea trade routes. As far as the Turkish transport system is concerned, the implications of this diversion is quite clear: Now that the Suez Canal is closed for six years and the chances for its continuous :1: 31:1: - stmctnre by :iz'e :ir. 1208151" If the a: the: what are the t.- tions to realize ‘ 12115 27 continuous reopening are slim, can Turkey pull some secondary external flows through her transport infra- structure by offering over-land connection between East and West? If the answer to this question is in affirmative, then what are the transport and commercial policy implica- tions to realize this active role? ‘1" . 2 81121321: par 1113.1 5;: 27.01» variables -- a- up the :1 . ‘ I 4 .3“ _ I‘d ( 3w a 3’. '94. “~43 . pnbabiiiSilc T; DENQ‘.‘..‘:I ‘ “..k‘ so c to ‘t , "5°55 lie dig“ a “4““. if. C .61. . 933119.114. 28 1. 6 General Outline of the Study (1) This study is made up of two main parts: An analytic part will attempt to formulate a general trade flow model -- in terms of a set of explanatory variables -- among the group of countries that make up the region in which Turkey is strategically located and a potential transit point. Then, by the use of a probabilistic approach developed by Savage and Deutschli/ "size effects" will be eliminated in order to assess the effects of trade obstacles -- such as, distance, location, and preferential trade arrangements -- on the size of trade flow. The main purposes of this part are (i) to determine the responsiveness of inter- regional trade size to changes in obstacles, and (ii) to evaluate potentials for transport economies and possible route diversions and the impact on Turkish income and balance of payments outlook. Savage, R.I. , and Deutsch, K.W. , "A Statistical Model for the Gross Analysis of Transaction Flows, " Econo- metrica, Vol. 28, No. 3, July 1960, pp. 551 ff. 1'11 11.151130 pa." first par: :70 1 .e-s ..' 1 ~‘-..-; mer\bat Db aaxae 11111152120105 1 111 1:211:15 1:. 13:11:15. 5593, issues are 0151 931*.th of in: at 33161713: is, measures 10 ' (Z) 29 The second part of the study takes the results of the first part and evaluates Turkish transport and com- me rcial policies in a pragmatic manner. Secondary external flows in the region and their trade elasticities are analyzed in terms of their transport policy impli- cations. Specifically, commercial and transport policy issues are defined, alternatives are evaluated, and patterns of implementation are suggested. Finally, an attempt is made to assess the contribution of proposed measures to Turkey's role in the regional trade. 1.? 9131351517." It is c115: that ,. j-EJEI ‘ ‘Il using 1x11 {:21 trait .4 1132591211 51511:"; a: Ii. : ' )1...h,23" c P- The 01.1; 5;:- “16:07.: Part Si this 53.2.. -'¢‘ . 1:16:53“, as 9.8 able difficultiec 1 30 1. 7 Related Research It is clear that the approach outlined above is one of using external trade flows in order to shape Turkey's total transport system and strengthen its participation in regional trade. The theme and objectives of this study is similar to Michigan's Commerce and Commercial Policy Stud “1.6.! The only difference is the methodology followed in the first part of this study. A study of Michigan's commerce -- interstate, as well as international -- encounters inescap- able difficulties due to lack of accurate statistical data, especially in interstate commerce. Consequently, J. L. Hazard's main effort has been on finding a proper empirical approach to obtain an accurate estimate of interstate com- merce. In this study, however, ”accurate" published data are available from several sources. Therefore, the emphasis in the first part of this research is not on methods of gathering new data and assuring an acceptable _l__§_/ Hazard, J. L. , Michigan's Commerce and Commercial Policy Study, E. Lansing: Division of Research, Gradu- ate School of Business Administration, Michigan State University, 1965. level oi attract, b . extent trade c335 "- u service. The 5127‘;- bnzgmg the exte rt. and carry «0 3C1?“ 1;. Shiite-3. V' In. .. and? w . flows we re c::- 1., To file wrz‘. , e ’ h‘; 21:75 31 level of accuracy, but rather on trying to explain to what extent trade could be increased by reducing obstacles and how Turkey might shape its transport and come rcial policy to cutting trade costs or improving quality of service. The similarity between the two studies stems from bringing the external dimension in shaping the transport and commercial policies. Another similar study is Trans- shipment Hawaii, Steps Toward an East-West Distribution and Processing Cente rll/ in which primary and secondary flows were emphasized as a basis for policy making. To the writer's knowledge no other research attempts the synthesis of the above -mentioned studies. Numerous studies have examined interregional trade patterns and elasticities, and others, the planning of transport infra- structure, but none have used external comme rce to shape internal and flow-through planning. However, if the two parts of this study are taken individually, many similar studies can be cited in relation _11/ Hazard, J. L. , Trans shignent Hawaii, Step3 Toward an East-West Distribution and Processingélenteg Univer- sity of Hawaii, College of Business Administration, Bureau of Business Research, Honolulu: 1963. to each pa“ 59}? ’ matter of in rat; studied by 52:12:. -. To cite a fe'a' :- Dan 99~O 1 ’5: 65H»: .334. Y: _ h H. anagram, r . trade flows 6.211 r.“ am0.e C’w-‘J, e} e- -‘t ands, \- - 3116.5: tater than R" v a , P 11 ' )2 . en ant- “u! \q_. \ “‘dlzel ? ‘ 3 on“ (‘ 2;; p .. \ Olgx‘. ‘ Lnive.‘c 32 to each part separately. The first part of this study is, obviously, the subject matter of international trade and has been extensively studied by economists. To cite a few examples of studies related to the first part, international trade studies made by J. Tinbergen,-133] H. Linnemann, P. P5yh5nen,l_9_/ K. Pulliainenlg/ cover trade flows among a number of countries which make up a mo re comprehensive region of the world than this study. Some studies, such as F. Hildegerdtfll P.L. Yates,§_z../ and A. Maizelséi/ use a general descriptive approach rather than going into details of country-to-country flows. In contrast, the studies made by J. J. Polak,§i/ H. Neisner Tinbergen, ER: _c_i_t_. Poyhb'nen, P. , "A Tentative Model for the Volume of Trade Between Countries, " Weltwirtschaftliches Archiv, Vol. 90, No. l, 1963, pp. 93 ff. Pulliainen, 22. 25. Hildegerdt, F. , The Netwggk of World Trade, Geneva: League of Nations, 1942. Yates, P. L. , Forty Years of Foreign Trade, London: Allen and Unwin, Ltd. , 1959. Maizels, A. , Industrial Growth and World Trade; New York: Cambridge University Press, 1963. Polak, J. J. , An International Economic System, Chicago: University of Chicago Press, 1953. HO—I \OCD \\ \\ NN o—IO N N \ N OJ \ IN sh \ ‘ . a and F. Mciig.;ar.1,: and S. iiuzzetsfi. national traie. F: ' hternational trade . my uncle: The seccnd 9.3 N :w .. and 'V H a.. ’ ' ... _ “V'- o...‘ . .-10. ‘ I Greg-sh Of ‘ - made: C0w _ w‘e‘iflzyc‘. Pa ., \‘L 3 ‘ q. l J. .9/ _ \. 33 and F. Modigliani,_2_§/ W. Becke rman,2.§_/ J. D. Coppock,§.7_/ and S. Kuznetsgfil are purely analytical studies of inter- national trade. For a review of econometric research in international trade the reader is referred to S. J. Prais' article..‘.7‘_2/ The second part of this study is the subject matter of national transport systems. Many country surveys have been made with resulting national transport policy implica- tions. Some of these studies are National Transport Group's study resulting in a transportation plan for Argentina,_3__g/ _2__5_/ Neisner, H., and Modigliani, F., National Incomes and International Trade, Urbana: University of Illinois Press, 1953. if)! Beckerman, W. , "The World Trade Multiplier and the Stability of World Trade, " Econometrica, Vol. 24, No. 2, 1956, pp. 239 ff. Ell Coppock, J. D. , International Economig Instability, New York: McGraw-Hill, 1962. fig] Kuznets, S. , "Quantitative Aspects of the Economic Growth of Nations: IX. Level and Structure of Foreign Trade: Comparisons for Recent Years, " Economic Development and Cultural Change, Vol. 13, No. 1, Part II, 1963, pp. 1 ff. 2 / Prais, S. J. , "Econometric Research in International Trade: A Review," Kyklos, Vol. 15, No. 3, 1962, pp. 560-579. _3_Q/ Argentina, Republic of, Transportation Planning Group, A LonLRange Transportation Plan for Argentina, Buenos Aires: 1962. H. Eater's survey nade by Parsons, 5 W. Owen's survey Reconstrucfi... ‘v-n U“ 6..“ attempted smiie 5 3318 the exte :22." A ~‘ I the xtPC Fiat th‘ ,. ,. ., Hayward .._ '17 - .. “4’ Co 122‘s: . G b 3- B”§3§a- 3 ‘i/ 0‘9“. v; a. of pal-.2353 :/ Q 34 H. Hunter's survey of Soviet transport policy,.§.y a study made by Parsons, 353:1: on Colombia's transport system,§_2./ W. Owen's survey of transport in Pakistan§_3_/ and West Pakistan,..3_‘y Stanford Research Institute's transport study of Nige ria,.3_§/ and Transportation Consultants, Inc. '8 study of transport in Thailand.§§/ Also, International Bank for Reconstruction and Development and United Nations have attempted studies on transport infrastructure and on plan- ning the external sector, respectively. The important difference between the above surveys and this study is the external orientation of the latter. This 1/ Hunter, H., Soviet Transportation Polig, Cambridge: Harvard University Press, 1957 Colombia, Republic of, Ministry of Public Works, Plan for Improvements in National Transpo rtatio_n_, (Report prepared by Parsons, Brinckerhoff, Quade, and Douglas. ) Bogota: 1961. Owen, W. , Transport in PakistanJ Karachi: Government of Pakistan Press, 1959. Owen, W. , Transport SurveLof West Pakistan, Karachi: Government of Pakistan Press, 1960. Stanford Research Institute, The Economic Coordination of Transport Development in Nigeria, Menlo Park: 1961. Transportation Consultants, Inc. , A Comprehensive Evaluation of Thailand's Transmrtation System Require- ments, Washington, D.C., 1959. c» I.» \ W 00 W U1 A 00 \\\ DO 0‘ \ study attemps :2- i- Icfxey, no: 52‘); nations, but 315: : Cue recent SM'“ -:._ tun‘ . Corntss‘toz's a... ..aJ Rican-Yirgiz :5; we ' . W‘ (1:02 5‘5.F~ I‘ J ‘ ° a. t PuerLo ‘\.CO at“ I‘. simila ti: 35 study attempts to design a national Transport policy for Turkey, not only on the basis of Turkey's trade with other nations, but also on the basis of Third country trade flows. One recent study conducted by U. S. Federal Maritime Commission's Bureau of Domestic Regulation on Puerto Rican-Virgin Islands trade heavily leans toward the trans- po rtation system in shaping the come rcial policy of Puerto Rico and Virgin Islands..3:l/ The re is greater similarity between the FMC study and this study than the other studies mentioned, for both studies emphasize pri- mary and secondary flows. _3_1/ U.S. Federal Maritime Commission, Pue rto Rican- Virgin Islands Trade Study: A R_egulatory Staff Analysis, Washington, D. C. : U.S. Government Printing Office, April 1970. mu , ..'... ) . Vr‘OOO .L:‘ E: II. -. Cte'e» I... CHAPTER 2: A MATHEMATICAL FORMULATION OF THE TRADE FLOW MODEL 2. 1. Factors Affecting the Size of Foreign Trade An attempt to explain the magnitude of trade from one country to another during any time period must, neces- arily, include the following explanatory factors: (1) (Z) (3) Potential supply of the exporting country or propensity to expo rt . Potential demand of the importing country or propensity to import. Other factors which can be classified under 'resistance, " a term, borrowed from physics, which is equally appropriate in economic analysis. However, the term should not be interpreted in a literal sense. It not only includes those factors which reduce trade such as distance, war or political hostility, but also encompasses factors which help to stimulate trade such as preferential 36 traie arr». ‘l corms-51'. the “less" Some have 25o and combhatier. s: rmal, The; ‘ ”.1. explantory fact; .- 37 trade arrangements, good location, and favorable commodity composition of exports in relation to the demand of an importing country. Some have used an analogy between pressure, gravity, and combination systems in mechanics and economic pheno- menal, The analogy can be applied to the above three explanato ry factors as: a (1' _ (s?) 1(1)?) 7- .. a 1 J 13 o ..........(2-1) (1 (R15) 3 ij denotes the flow from country i to country j. S? is the potential supply of country i. D? is the potential demand of country j. Rij is the resistance to trade along the interface from country i to country 5. “o is the gravitational constant. 01 a2 a3 are elasticity parameters. 1 (2-1) depicts a general model of interaction between 1/ Hazard J. L. , MTA 890, unpublished lecture notes, E. Lansing, Graduate School of Business Administration, Michigan State University, Spring 1970. I . 3, ‘3! W'Lfif‘h 1.1 L1 0‘. 1 J mplaces, critic“ borrowed from Tier;- I probabilisic a;_:.’t action, this graviz' bemeenianc‘ j is '. divided by the res. claimed that the :1 action between p‘. _.-, out that Q-l- ass . W516i: is con. .- badr‘\ 7 5‘ J. the absence cf at l . - . m“? realize a 38 two places, commonly known as the gravity model which is borrowed from Newtonian physics. Omitting W. Isa rd'sé/ probabilistic approach to the derivation of a model of inter- action, this gravity model simply asserts that the interaction between i and j is the product of the masses of the two places divided by the resistance between them. Although it is claimed that the model can "determine the optimum inter- action between places, "2, our aim he re is to simply point out that (2-1) assumes the importance of resistance to trade which is contrary to the pure theory of international trade. In the absence of resistance factors every country would actually realize its potential supply and potential demand. However, resistance factors do exist, and their influence upon a specific trade flow differs significantly from the influence they exert on other trade flows. Without going into details as to what constitutes resistance, let us compare Z-j Isard, W. , et al. , Methods of Regional Analysis, New York, John Wiley and Sons, Inc. , 1960, pp. 493 ff. 2/ Weber, A. , Uber den Standorf der Industrien, Tubingen: 1909. English Translation by C. J. Friedrich, Alfred Weber's Theory of the Location of Industries, Chicago: University of Chicago Press, 1929, p. 22, f .t c “a: r--- ..ae VCR?“ v. 5" the reg‘. 2 of this s; least natural rests' su rounded st; firs; serious barrier tr. N1 . ‘ ' vane? % :25 36‘.’ I. do: of oo:er.‘.ia‘ " by the cont-Arie 5 tier - -' ; h! a“ area is 312:“ C s S? .. ‘4 Cu‘ ’4“ “Ms‘ .' ’6. a ' Akt 39 the "Cockpit of Europe" with the Pamir Knot, both within the region of this study. Obviously, the former offers the least natural resistance to trade; whereas the latter, being surrounded by insurmountable mountains, constitutes a serious barrier to the movement of goods and people. Other things being equal, one should expect a greater por- tion of potential demand and potential supply to be realized by the countries in and around the "Cockpit of Europe" than by Afghanistan, because the resistance in the former area is much smaller than in the latter. The system of interaction represented by (2-1) implies a constant value of S? for an exporting country. On the other hand, the value of Rij is not constant for an exporting country: Its value must be determined for each country-to- country flow. The same argument is also true for D; of an importing country. This point can be represented by a system graph as shown in Figure 2. l. o ‘, 1. More a. .. _A.._.—.——-— In the exp: :1 2'1» 0213‘ one va‘, s . ‘ , - ': $.. 800(35 {0 I i Tale, ance (R1?) R13! 9», a... tra de flows {'1‘ Suns? Uri} 3‘ at”). ( flows .. “PM diSiO “Ed in 1- 931.13,} 0 ar. flows .. in > 40 Figure 2. l: A General Graph of Interaction Regesented by (2-1) Country 2 o D; R12 Country 1 Country 3 SI; 0 >Q DI; Country 11 In the export system for country 1 depicted in Figure 2. 1, only one value of potential supply is sufficient to explain the "readiness" or capability of country 1 to offer goods for trade. Experiencing different levels of resist- ance (R 12, R Rln) from different importing 13. . . . , countries (2 through n) determines the size of individual trade flows (012, 013, . . . , aln). Thus, the potential supply of any country with respect to its primary outgoing flows -- exports -;- is a uniform distribution which is distorted by resistance factors. Similarly, the potential demand of any country with respect to its incoming primary flows -- imports -- is a uniform distribution whose con- stancy is distorted by resistance factors. . Ingmar. nr I! V; '.\ f . So far, we haw izditidual trade C. to operadczaiize 1." specific factors t}. demand, an! ‘ec‘ 4 1 So far, we have offered a general description of individual trade flows. In the next section we will attempt to operationalize the general description by determining specific factors that make up potential supply, potential demand, and resistance factors. Ir. mtg to def must assume that a are subject to exe- assurratior is re ‘-' isolate the effects Along the line of t. resubtrit that a c» national output "1' the domestic mar I ' ‘. I”Litr‘woxts, 42 2.2. Specific Factors Determiningthe Size of Foreign Trade 2.2. 1. Potential Supply In trying to define the potential supply of a country we must assume that all countries' outgoing primary flows are subject to exactly the same trade resistance. This assumption is necessary because our model attempts to isolate the effects of resistance factors from "size" effects. Along the line of thought developed by H. Linnemann,i/ we resubmit that a country's potential supply depends on its national output (Yi) and on the ratio between production for the domestic market and production for foreign demand (ri). In other words, sp = f(Y. r.) (2-2) i 1' 1 O O O C O C 0 C O C It has been argued that, under conditions of equal trade resistance for all countries, population size, rather than i/ Linnemann, H. , An Econometric Study of International Trade Flows, Amsterdam: North Holland Publishing Co., 1966, pp. 11 ff. :O- ‘ 'W‘ per cap..«. 1:. ....e, n V 1' here: lave-.5 :f 3.- latio: size is held nears, end-rely ‘.' deuce is a 5:253 : fortZ courtries “ are not related 1 later. size, 5:; T . C”. 81155» 311C: 7 ' 4 Q" .D- .3 Y . tuznets. S, ”I Gleam. :11 l : u' lf’"n «items-1... A... . " “ .H“enca: : [kl-“Sch ;- ti I a, 0:1. Solve-J C: an: . r “2': DD. ““Zteta - 'I 11“ {fro-.— E. [-0 \ ..'4 O \ I \ ..r‘ .l Oq.r 43 per capita income, significantly explains ri.§-/-é/-7—/ The important assumptions underlying this argument are economies of scale and the diversification of demand at higher levels of per capita income, which somewhat offset each other as per capita income increases while the popu- lation size is held constant. The arguments are, by no means, entirely theoretical. A supportive empirical evi- dence is a study made by H. B. Chene ry_8_/ which showed, for 62 countries during 1952-1954, that per capita imports are not related to per capita income, but related to popu- lation size. Similar results were obtained by K. Deutsch, C.I. Bliss, and A. Eckstein,_9_/ S. Kuznets,19./ and A. M. _/ I_b_i_<_i., p. 13 6/ Kuznets, S. , Six Lectures on Economic Growth, Glencoe 111.: The Free Press, 1959, p. 94. _7_/ lVlichaely, M. , Concentration in InternationalTrade, Amsterdam: No rth-Holland Publishing Co. , 1962, p. 111. fi/ Chenery, H. B. , "Patterns of Industrial Growth," American Economic Review, Vol. L, 1960, pp. 624 ff. 2/ Deutsch, K., Bliss, C.I., and Eckstein, A., "Popula- tion, Sovereignty, and the Share of Foreign Trade, " Economic Development and Cultural Change, Vol. X, 1962, pp. 353 ff. 1 / Kuznets, S. , "Economic Growth of Small Nations, " in Eponomic Consequences of the Size of Nations, (ed. E.A. G. Robinson), London: Macmillan, 1960, pp. 19 ff. a 1.1! smut.— lj‘sirg the star"; size of country i, it market productic n 44 Strout.l—/ Using the standard notation, Ni’ to denote population size of country i, instead of the domestic market-f0 reign market production ratio, ri, (2-2) can be written as: "P ._ Si - f(Yi.Ni) . . ........ (2-3) ill Strout, A.M., ”Savings, Imports, and Capital Producti- vity in Developing Countries," Paper presented to the First World Congress of the Econometric Society, Sept. 1965 (mirneographed). (TM- i“ '31:; . zi— O 9.. ‘ 1,2,1, Patna: Tne reaszrir. factors with ex: to potential den: country 3, 3:, i population N: 45 2. 2. 2. Potential Demand The reasoning developed so far in determining those factors which explain potential supply is equally applicable to potential demand. In short, the potential demand of country j, 6?, is related to its national output, Yj and population Nj : Ap A D. : Y' N: o o o 0'. o o o o o 2'4 J 3( J. J) ( ) 2.2.3. Resistance in this sectitr assumpdon trade for all countries. into any tragic-1 ;;' tween terminals 46 2.2. 3. Resistance Factors In this section we will move away from the earlier assumption made regarding equality of trade resistance for all countries. In fact, incorporating resistance factors into any model of interaction implies that resistance be- tween terminals is not equal from one edge to the next. We can distinguish between two types of resistance factors: natural and artificial. Natural Barriers to Trade. An important natural barrier to trade is transportation costs. Determining the true transportation cost of shipping an item from one place to another is a complicated matter. According to C. P. Kindleberger, the following factors play a role in deter- mining shipping costs :13] weight, bulkiness, value, physi- cal characteristics, distance to be traversed, the mode and speed of transport, character of the route, and possibility of backhauls. To make the matter worse, we can add density, palletization and containerization, possibilities of L2] Kindleberger, C. P. , Foreign Trade and the National Economy, New Haven: Yale University Press, 1962, p.11. duayafi57? availability at”: I to the above list tdensea 3:; weigh all releva Another 1:72: related to trans volved in trans: to the creation : timefljl but it No terminals { increases irre Ol trans Poftat; ItecessapY Stat 47 damage and/or pilferage, number of transshipments, availability and loading capacity of transport vehicles, etc. , to the above list of factors. Undoubtedly, it is impossible to devise a single or composite index which can accurately weigh all relevant factors that define transportation costs. Another important natural barrier to trade, closely related to transportation costs, is the time element in- volved in transportation. True, transportation contributes to the creation of two kinds of utility to goods: place and time,.l.3_/ but it is also true that time spent in connecting two terminals constitutes an obstacle to trade because it increases irregularities in supply. "The longer the time of transportation for a certain commodity, the greater the necessary stocks of it in the importing country and the greater also the risk of losing profitable opportunities. ".11/ A third natural barrier to trade is what C. P. Kindleberger calls "economic horizons," or "psychic distance" as referred _1_/ Hay, W. W. , An Introduction to Transportation Engineer- ing, New York: John Wiley and Sons, Inc. , 1961, p. 38. l / Linnemann, 2p. cit., p. 27. by W. Beci-te rrra n. psycLic sense, a'. o 9" ire latter country fcrrner country - ties reflectinz it also the uresent lit-tea L'e esta 48 by W. Beckerman..L5_/ Beckerman's example that to an Italian importer, Switzerland is closer than Turkey in a psychic sense, although economic cost of shipment from the latter country to Italy may be lower than from the former country -- due to differences in transport modes -- signifies the importance of not only cultural and historical ties reflecting itself in habitual trade relationships, but also the presence or absence of effective communication links in the establishment and maintenance of trade between two countries. Unfortunately, there are no indices developed which can accurately represent the interaction between the above three natural barriers: cost, time, and psychic distance. Our attempt here is not to develop such an index. For the present moment, we will assume that the geographic distance between country i and country j (Dij) represents the above three factors. Let us state, at the outset, that this assump- tion is a very crude one. It is made mainly because the re _l_§_/ Beckerrnan, W. , "Distance and the Pattern of Intra- European Trade, " The Review of Economics and Statistics, Vol. 28, Nov. 1956, p. 38. ing the joint effe; distance on the 5 may see" the z a... reality. To tes the inte racti:: ‘ 49 is no other variable which is better than distance in explain- ing the joint effect of transportation costs, time, and psychic distance on the size of trade. Nevertheless, as crude as it may seem, the assumption is not very far from general reality. To test the validity of this assertion, let us observe the interaction presented in Figure 2. 2. Figure 2.2: Interaction between Transportation Costs, Time, and Psychic Distance and Trade Size [Antecedent Variable s] [Inte rvening Va riablel lConsequent Event] Transpo rtation costs Transit time —-) Geographic 47 Trade Distance Size Psychic Distance The first proposition of Figure 2.2, namely, cost- distance interaction, has been the center of debate, espe- cially among location economists, since the dawn of this century when A. Weber's wo rial—6., was first published. _1_é/ Weber, A., 22. git. We do not advocat related. However relationsbi: betw A narrow modal ct. land moves and ‘ pcxrticn of cornrti- traffic. like; v, relaions’n‘r Au 39.31 wJ-—-_—. ’ 50 We do not advocate here that cost and distance are linearly related. However, we assume that, in general, there is a relationship between transportation costs and distance. In international trade most trade flows are restricted to a very narrow modal choice. Except some intra-continental over- land moves and a small, but increasing air traffic, a great po rtion of commodities traded in the world are sea-bo rne traffic. When we limit ourselves to one mode, the general relationship between cost and distance becomes mo re apparent. The pragmatic side of the second proposition: Tirne- distance relationship can, again, be established by limiting modal choice to water. In spite of a great variety of vessels serving sea-borne inter-continental traffic, speed per time unit does not vary extensively. Therefore, the re is a close positive relationship between transit time and distance. The third proposition asserts that if two countries are geographically close to each other, it is more likely that they will have historical and cultural ties, as well as better communication linkages, all of which bring the two closer to each other in a psychic sense. It may be argued that there are as support it: for en Nations, USER a appear to be in; cases are due t; rather than natn: in Figure 2.2 g.- barriers will be cases which that 2'2 a“ 1101 valid " C-K- 21.. Kerr tion, When art; 2'2! hOWeve ?, l ex. . ‘ Jeans “11 Strip. R’s-it. ‘0'." ~ 10!] dlulC ..'. .\ow that ,3 between tranc. I p. | El dlslauce and dllcE the d. 151a: 51 that there are as many exceptions to this as cases which support it; for example, Israel and the Arab League of Nations, USSR and Turkey, and Turkey and Greece, may appear to be important exceptions. However, all of these cases are due to political reasons which are artificial rather than natural trade barriers. The interaction depicted in Figure 2.2 groups only natural barriers; and artificial barriers will be dealt with shortly. Therefore, political cases which may seem to constitute exceptions to Figure 2.2 are not valid exceptions. On the other hand, the case of U.K. and New Zealand is a valid exception to the proposi- tion. When artificial barriers are excluded from Figure 2.2, however, it will be realized that the number of excep- tions will shrink to a negligible size, thus making our pro- position difficult to refute. Now that we have established the general relationship between transportation costs, transit time, and psychic distance and geographic distance, we can formally intro- duce the distance variable (Dij) to our model: Rij=h(Dij). . (2-5) U ‘ - Distance an: array oi natural let us con ider -' Pakistan: in “Its Also, in a pure. unfavorable one income countri of the count rie is another bar the uriayo rab‘. term this (:2 faCior. bQCa‘. Winn-3‘s er Let us , 52 Distance alone is far from representing the entire array of natural trade barriers. As a case of discussion let us consider Afghanistan. This country is close to Pakistan; in other words, a highly favorable Dij value. Also, in a purely locational sense, Afghanistan is in an unfavorable position, because it is surrounded by low income countries. This means that the gravitational pull of the countries around Afghanistan is low. Naturally, this is another barrier for Afghan exports, since it stems from the unfavo rableness of Afghanistan's location. We will term this combination of terrain and isolation, locational factor, because this combination significantly affects a country's expo rt potential. Let us consider Belgium as a case in the other extreme. The internal transport system of Belgium is highly developed, thus giving a highly favorable connectivity. Also it is sur- rounded by high income countries, meaning a favorable isolation for Belgium. The favo rableness of these two factors: connectivity of transport system, and isolation deriving from the location of Belgium, must enable this .1; . (0331:? to 261.... affect the size :1 the folloving pa: to account in: t: termined locati; A measure beta index. "'I' the ra‘ to better me p v'o.,‘ 130mm; 53 country to realize a higher trade potential, cete ris paribus. As should be clear from the preceding discussion, transport connectivity and isolation are two forces which affect the size of trade flow in a composite manner. In the following paragraphs a composite index will be developed to account for these two forces. The composite index is te rrnined location index. A measure of transport connectivity is known as the beta index. "The [5 index expresses in numerical form the ratio between the number of edges (e) or routes in a [transport] system and the number of vertices (v) or nodes in that system, ".11, or _ E _ fl- V o o o o o o o o o o (z 6) In our model (2-6) can be refined as follows inorder to reflect the connectivity index for country i: e fii=-v—0000000000(2-7) ..lo “I ill Yeates, M. H. , An Introduction to Quantitative AnalLsis in Economic Geography, New York: McGraw-Hill, 1968, p. 114. 9 Computing 1: country in our :2 the other hand, limited. Cne as for the railroad Which are incl: the absence of; Of coir-913113 Cc use of (2.“, . a: will be trade 31‘ In deye‘; ;1 our region, We ll) Coils ”ll e 3 54 Computing the connectivity index by (2-7) for each country in our model is a voluminous task in itself. On the other hand, published data on this index are quite limited. One well-known survey is made by K. J. Kansky1_8_/ for the railroad connectivity of only 18 countries (nine of which are included in our region) for 1957. Therefore, in the absence of published data and facing the impossibility of computing connectivity indices for 31 countries by the use of (2-7), an attempt to obtain an approximation of Bi will be made here. In developing connectivity indices for the countries in our region, we will make use of the following two propositions: (1) Connectivity is a function of transport system mileage per capita (mi) or fii=k(mi)0 O 0 o o o o o o o (2-8) (2) Connectivity is a function of transport system mileage per unit area (ai) or _1_8_/ Kansky, K. J. , Structure of Transportation Networks, Research Paper No. 84, Chicago: Department of Geography, University of Chicago, 1963. v >>>>> Other itizgs the more adx-a: country. A c:'; 0f 31‘ my be 2.2 but connects-in 55 fii=l(ai)oooooooooo(2-9) Other things being equal, the greater the value of mi the more advanced is the transport connectivity of that country. A country's connectivity expressed only in terms of mi may be higher when compared to another country, but connectivity expressed in terms of ai may reverse the conclusion. As a case of discussion let us compare Greece and Iraq whose 1968 populations were about equal, 8. 8 and 8. 6 million, respectively. If the total transport system mileage of these countries were equal, then the values of mi would be equal, meaning the same level of connectivity. However, the area of Iraq is more than three times the area of Greece -- 434. 9 versus 131. 9 thousand square kilo- meters. Therefore, equal total transport mileages and populations -- thus, equal mi values -- would be misleading, because connectivity does not only involve interaction among people but interaction among spatially distributed people. In short, if population in Greece and Iraq are equal to each other, to speak of the same connectivity level in both ".1 .r. . f 55'. ..‘,- j. - ___, (_L. co‘ptries, the 13‘: more than Late! area. Toe reverse pressed in terms does not take in: example of this ( approximately er meters. reSpect million in 10. 5 using mi or a; i MCtiVitV index 1 ?:mi .i d‘o . . . 1 “head.“ Lie”- 1 .- Square 1’0th: 56 countries, the transport system mileage in Iraq must be more than thatof Greece to account for the difference in area. The reverse argument is also true: Connectivity ex- pressed in terms of ai only is not sufficient, because it does not take into account differences in population. An example of this case is Finland and Italy whose areas are approxitnately equal (337. O and 301.2 thousand square kilo- meters, respectively) but populations are not (4. 7 and 52. 8 million in 1968). In order to eliminate the weakness of using mi or ai individually, we will use the following con- nectivity index developed by N. Ginsburg—1.9] “-mi 210 fii-E—oooooooooo(-) 1 where di is the "population distance" and is equal to the square root of the reciprocal of population density, or 12 di=%)/ ..........(2-11) 1 12/ Ginsburg, N. , Atlas of Economic Development:J Chi- cago: University of Chicago Press, 1961. '21 In order t: C'e extent to which its, tential his general graxitj; :7 From the get in Section 2.1 :4 min; ":W I 0 1] D til I Where. 1-15 the l: distribhted {‘0 I bemeen C0111 rs: Polem of dis 12:! the favo 551,326 the incoxle 16 "“ ”mun”? i at In Order t (242; can be 57 In order to develop an index of isolation to show the extent to which a country's locationis favorable to realize its potential trade, we will make use of an extension of general gravity models. From the general description of gravity models given in Section 2. l the following simple formula can be established: _mim' - Iij--—ItToooooooooo(z 12) where, Iij is the gravitational interaction between spatially distributed two countries (i and j); mi and mj mean the mass between country i and country j, respectively; Dij is the distance between country i and country j; and I51 is the ex- ponent of distance parameter. Since our emphasis he re is the favo rableness of the location of country i relative to the income levels of countries around it, mi and mj in (2-12) can, specifically, be interpreted as per capita income levels of country i and country j, respectively. In order to show the isolation index (Ii) at country i, (2-12) can be extended as: mm» __._ _.._ a 58 11 +1. +...+Iij=ZIij(i¢j)........(2-13) Ii :Iil 12 , F1 01‘ 1 _m-iml _ mimZ + +mim' _ 2 mim' ' .- 1 O O O - 1 D, {3 [55 .. /3 ._ /3 ( 11) (D12) (DU) 3-10315) (iij)..........(2-14) In (2-14) mi appears as a common term. Therefore, simplifying (2-14) will yield the isolation index of country i. I-:m.z-—l-l (iij)ooooooeooo(2-15) (2-15) does not take into account the effect of domestic flows in country i. The effectofdomestic flows (2-15) can be refined as n mi mi . . Ii=miz fl +____1(1#J)oooooooo(2-l6) =1 (D. ) .5(Dik)l’ In 2-16, Dik denotes distance from countryi to the nearest country k. The value of . 5 is a convention applied so as not to give undue weight to the country itself. .29., £9] Yeates, op. cit., p. 25. (2-16 in; capita income aloe -- The is the isolati. We have index of Ira: 05 isolaticn. Our €02:st 01‘ 59 (2-16) implies that a country located near high per capita income countries will have a high isolation index value -- The greater the index value, the mo re favorable is the isolation of a country. We have now developed two indices: (2-10) gives an index of transport connectivity, and (2-16) gives an index of isolation. Using (2-10) and (2-16) we can now develop our composite location index (Ci)' A Ci:'BiIi. so... one. (2'17) 11 01= 1L[mix L+ Ll] (iij).. . .. (2-18) '=1 1 J (Dijtl3 .scnik)‘5 .els (2-18) states that a country's ability to expo rt is the product of its connectivity index -- showing how far the country has advanced its transportation network -- and its isolation -- showing how favorable the country's location is in relation to the gravitational pull of high income countries. Incorporating the composite location index to (2-5) will provide us a modified version of natural resistance factors. artificial barri -~ "\.¢ _z.‘ Ah“‘\l.1‘ N.— ments and 1;; 60 A _A 2 Rij*h(Dij,Ci)o o o o o o o o o o ( '19) This completes our discussion of natural barriers to trade. In the last part of this section we will deal with artificial barriers to trade. Artificial Barriers to Trade. The complexity of quantifying government controlled artificial trade impedi- ments and incorporating them into our model as a measur- able explanatory variable must be readily admitted. The complexity stems mainly from the heterogeneity and dive r- sity of artificial barriers. These obstacles ”may take the fonn of tariffs, quantitative restrictions, exchange controls, or a combination of these. "Ell Although the existence of artificial barriers and their trade-reducing effects cannot be denied, the re is no agreement among international economists as to how these obstacles should be quantified. In our general trade flow model we will develop the concept of artificial barriers as distortions from a uniform distribution of trade resistance. In other words, we will __l_/ Linnemann, 9p. cit., p. 30. start with the as have establisre' and develop 116 this assurnptizz . 1321'.) . f'h't‘h cv‘. *1 I‘D (0 exe bet its 61 start with the assumption that all countries in the region have established equal artificial barriers to their imports and develop the model by adding distorting variables to this assumption. The reality of this assumption is sup- ported by the fact that among GATT members discrimina- ting artificial trade barriers are not generally permitted. Starting with this assumption we can distinguish between two opposite forces: (1) Trade-reducing artificial forces. The most important reduction in trade -- a negative distortion from the uniform distribution of artificial trade resistance -- is the presence of war or political hostility between two countries. In case of war there is a complete embargo to trade between enemies. A partial embargo to trade also exists between countries engaged in cold war. In short, it is hypothesized that existence of war between country i and country 5 (Wij) significantly reduces the trade between them. Incorporating this factor to (2-19) our resistance function is further i" “a refined distx‘. ficial '. are "‘ Cub: ”Nice: 62 refined as A A , Rij =hiDij.Ci.Wij) . . . . . . . . . . (2-20) (2) Trade-stimulating artificial forces. A positive distortion from the uniform distribution of arti- ficial trade resistance occurs when trade partners are members of a regional economic integration. Snider presents the following three forms of economic integrationéi/ (i) The Free-Trade Area, such as the European Free Trade Association, is the least intensive regional integration. All artificial restrictions on trade among member countries are removed, but members may develop their own artificial restrictions on trade with nonmember countries. (ii) The Customs Union, such as the Benelux, «_2_Z_/ Snider, D.A. , Introduction to International Economics, 5th Ed. , Homewood: Richard D. Irwin Inc. , 1971, pp. 222 ff. al~\ )5 63 is ”one degree further along the scale of economic integration than a free-trade area. ".23! Members of the union use a common external tariff for their imports from nonmember countries and eliminate all artificial barriers to trade within the union. (iii) The Conunon Market, such as the European Economic Community, represents the highest degree of economic integration. In addition to the trade-stimulating forces established by the customs union, the common market also permits free move- ment of labor and capital among member countries. In our model the entire array of regional integration between countries will be treated as one explanatory variable. Denoting the degree of integration between country i and country j by Sij and incorporating this 3._3_/ Ibid., p. 222. {17:35: "I in . x'aria': 2.3 Tile C-er.e At this L: briefly the a: 64 variable to (2-20): A A Rij : h(Dij’Ci' Wij’Sij) 0 O O o o o o o o o (2'21) 2. 3 The General Trade Flow Model At this juncture, it would be worthwhile to summarize briefly the arguments presented so far in this Chapter. In Section 2. 1 the general model of interaction is presented by Equation (2-1). Section 2. 2 presented specific factors detailing explanatory variables for potential supply -- Equation (2-3); potential demand -- Equation (2-4); and resistance factors -- Equation (2-21). In this study the effect of explanatory variables is assumed to be multiplicative rather than being additive. Therefore, (2-3) can be written as SP=Y‘ N. 000000....(2-22) (2-4) can be written as 6 6 D?:Yo3N.4°OOOOOoooo(2-23) J J J (2 -21) can be written as a a a b R =1)..5c:."w..7S.8 .. o oooooooooo(2‘24) 13 1J1 1J1] If?“ ' gar-n was i “ M H 4' Now we have location (M a' variables as six 33' substi‘v“ - Mon“; . R.. -. I)“ Can rem. 65 Now we have the general format of interaction given by Equation (2-1) and specific interactions among explanatory variables as shown by Equations (2-22), (2-23), and (2-24). By substituting (2-22) for sf, (2-23) for DJP, and (2-24) for Ri' we can rewrite (2-1) as follows: J Y.51N§2 Yf53 N54 : 8 1 1 J J (2‘25) aij 085 66 57680000000000 (2-25) offers a general model of interaction between explanatory variables which determine the size of trade’ flow. In the next chapter this general model will be modi- fied so that the "size effects" are eliminated. The analysis will then center around the effects of resistance factors on trade size. However, before proceeding further on the methodology, a schematic review of this Chapter is pre- sented in Figure 2. 3. The general interaction model given by Equation (2-1) is ope rationalized by selecting a number of relationships between these variables and intervening ' variables. Trade size then is assumed to be a function of intervening variables which are in turn functions of ante- cedent variable 5 . 1| I P . ”rucfaazv. .. I unn‘. ~—-O.|-|HHIAn— 7 I \a II« ~..:3.~:.7.‘ m. || | l q . dun—v ~§:Auu.u.v=3h AIIV~A~=NL Q> uu~.-U.~.-V~:<. a:U>.r.~ druflnowu‘lannivV AIn-n~CmL a...) Iruuzlv>hrv . ., serigpuw (Aw: ..w-u..-..—mu4,. t shawl n V awkwatmflrlfi. 1w-rV-vnbn\l— cine-«s. .m.. ll: till ll. lid: .5qu Iv.\t/.I.Nta v. (Numvw «led... .pP—w a. F- a. Amfimvmwonoh mnflflsfiflm ocean... H V 6 v. I 6 J 3 A. Mgvuoouoh mm wfiusvom sneak. a m. Tll Em A ; a ... , ..m 3 .3 a :3 13 ooamummmom m. 3. 0 OH I. .WMT nu $85383 n m 1 m a.” m. 1 A .etasma .. 9 “1...“ S 1 Ha." . .m H- A. .9 4.4.". . swam endufi mflmm \l .n an: 92:50 smnnosom mega: m> wfiflobu 9:: ' A $5350 35an azaaosflsmom 3 £93.55 r w .u fiaflfiouonm A.M.:smudo m. m ._. - €8an m. 3 “Got/H udodwomnou tum 0:) Sum oduII E Amfifimnofldfiom Haofionw @ahdmnmxr unowooo® #352 swash. on» a: moaning. mo noflodn ounH 93th "QM 93 E ’i-‘Jl-i'. ‘* . _“ Sigrnica: 10Casi-10:1 . Si2e? An - \. “TS: that has "119 e: AL at. CHAPTER 3: METHODOLOGY 3. 1 Introduction In Chapter 2 a general model of interaction is presented by Equation (2-25). The general model offers a good start- ing point for an econometric analysis of the effects of explanatory variables on aij' However, the purpose of this study is not to seek empirical validation for inter- national trade theo ry,_ but to determine the role played by resistance factors in the trade size. Specifically, how significant are the effects of natural -- distance and location -- and artificial trade barriers upon the trade size? An analytical interest centered around resistance factors necessitates a modification of (2 -25) in such a way that resistance factors are isolated from the so-called “size effects. " In this Chapter a methodology which allows such an isolation will be developed. In (2-25) "size effects" can be identified as those explanatory variables appearing 67 in the acne rat. eliminated first erces car fur: The met}. developed by Similar meg: 1 Re FnSCh,' 0‘ Savage at with 32.3; 5:; 1\ of the “ha. ‘ F3156: Bella: V01. ‘ 2’ pole}: [—4 $7 68 in the numerator. If the effects of these variables are eliminated from the matrix of trade flow data, the diffe r- ences can further be analyzed in terms of resistance factors. The methodology followed in this study was first developed by R.I. Savage and K.W. Deutsch._1_/ Somewhat similar methodologies and analogies were used earlier by R. Frisch,§-/ J.J. Polak,§—/ G.V. Glassi/ and I. Blumen, g_t__a_}_:_.5./ H.R. Alker, Jr. ,8] developed a computer program of Savage and Deutsch's analysis for an IBM 709 computer with 32K storage and up to 150 actors. Later on, L.A. Goodman simplified the computational routine considerablyl/ _1_/ Savage, R.I., and Deutsch, K.W. , "A Statistical Model of the Gross Analysis of Transaction Flows, " Econome- trica, Vol. 28, No. 3, July 1960, pp. 551 ff. 2_/ Frisch, R. , "On the Need for Forecasting a Multilateral Balance of Payments, " The American Economic Review, Vol. 37, 1947, pp. 535 ff. _3_/ Polak, J. J. , An International Economic System, Chicago: The University of Chicago Press, 1953, pp. 54 ff. _/ Glass, G. V. (Ed.) Social Mobility in Britain, London: 1954. El Goodman, L.A. , "Statistical Methods for the Mover- Stayer Model, " Journal of American Statistical As socia- tign, Vol. 56, 1961, pp. 841 ff. 6/ Alker, H.R. . Jr. , "An IBM 709 Program for the Gross Analysis of Transaction Flows, " Behavioral Science, Vol. 7, No. 4, Oct. 1962, pp. 498-499. 1/ Goodman, L.A. , "A Short Computer Program for the Analysis of Transaction Flows, " Behavioral Science, Vol. 9, Apr. 1964, pp. 176 ff. 'I‘.’ .- «mink; and broadened 1:. the methodol; gig to isolate "size distance vari‘ '3' countries for '1 ln Secti; r. Which is foils“. ties inSectiar. 69 and broadened the applicability of the analysis by modifying the methodology.-§/2/ H. Linnemannlgl used the analysis to isolate ”size effects" and determine the effect of only the distance variable on the size of trade flows among 80 countries for 1959. In Section 3. 2 a summary of notations will be given which is followed by the underlying assumptions and identi- ties inSection 3. 3. Section 3.4 develops the statistical model of solution. Section 3. 5 gives the solution detail. 8/ Goodman, L. A. , "Statistical Methods for the Mover- Stayer Model, " 22° __c_i_t_. 9/ Goodman, L.A. , ”Statistical Methods for the Prelim- inary Analysis of Transaction Flows, " Econometrica, Vol. 31, No. 1-2, Jan-Apr. 1963, pp. 197 ff. / Linnemann, H. , An Econometric StudLof International Trade Flows, Amsterdam: No rth-Holland Publishing Co. 1966, pp. 180 ff. In devel: 2‘. and definitions 3. 2 Summary of Notations 70 In developing the methodology, the following notations and definitions will be used. (1) (Z) (3) (4) (5) (6) (7) K Number of countries involved, including the i J' m,k Dummy indices used for summation. a.. 1J "rest of the world. " An index used for an exporting country. An index used for an importing country. Observed -- actual -- exports of country i to country j. Square matrix of trade flows among K number of countries, i.e. , all 0,12 0 o o alj o o o alk . ) = 0:21 azz O O I O’Zj o o o O’Zk D 00000 11 aiZoooaijoo.akk . . . (3-1) Total exports of country i. Note that each row summation in (3-1) gives the value of Xi‘ In othe r words, (3| 1; ‘9‘: I (8) (9) 71 K Xi = .2 aij (1 ¢ J) o o o o o o o o o 0 (3-2) F1 The side constraint (i at j) eliminates the possi- bility of a country exporting to itself. Total imports of country j. In (3-1) column totals provide values of Ij‘ K 10:200- (i#j)oooooooooo(3-3) (i 94 j) eliminates the possibility of a country importing from itself. Total world trade, i. e. , K T=ZIXi or..........(3-4) i=1 K Tzsz..........(3-5) J 1 Note that Xi in (3-4) can be substituted by (3-2), thus giving KK Tzzzaij (iij)..........(3-6) i=lj=l . in (3-5) Similarly, substituting (3-3) for IJ (13 D (10) Pi (11) s].l 12D. ()J (13) S (14) Ai (15) P1 J 72 the same definition as (3-6) can be obtained. (i 35 j) eliminates domestic trades from the definition of total world trade. Probability of a consignment going from country i to country j. Hypothetical potential supply probability of country i. (ith. country's theoretical tend- ency to expo rt.) Hypothetical potential demand probability of country j. (jth. country's theoretical tend- ency to import). A correction factor in order to exclude "expo rts" of country i to itself, whose value is K s=(1- 2 ska)‘1.. (3-7) k=l Expected (theoretical) exports from country i to country j. Proportion of world trade originated in country i. Xi piz—T—0000000000(3-8) (it “-3 ll? '1 (20 (21 (16) <15 73 Proportion of world trade imported by country j. I e = _J— o o o o o o o o o o 3- qJ T ( 9) (l7) RAij Relative acceptance of exports from country i (18) ni. (20) nj (21) N to country j, which is RAij : (aij/Aij) o o o o o o o o o 0 (3-10) Number of consignments from country i to country j. Total number of consignments origination from country i. K ni:znij (i#j)oooooooooo(3-ll) i=1 Total number of consignments terminating in countryj. n-=Znij (i¢j)..........(3-12) Total number of consignments in the wo rld's trade during a year. . ..i as (2213c (23‘ 74 K N=Zn':£n°oooooooooc(3-l3) i=1 j: Note that substituting either (3-11) or (3-12) in (3-13) will define N as K K N=ZZnij (iij)..........(3-l4) i=1 j=1 By (i a! j) all domestic flows are excluded from the definition of N. (22) B or Bi Size of each consignment. (23) fl Mean consignment size. (24) 02 Variance of consignment size. 3.3 Assam: ————L- lll A c: be 5: l3» '1 rr‘ (4; 75 3. 3 Assumptions and Identities (1) (2) (3) (4) (5) A country cannot export (import) to (from) itself, or ii: 5530..........(3-15) The kth country in A is an artificial country called "rest of the world. " akk E 0 implies that trade between two countries neither being in the region -- subset -- of interest is neglected. Trade between a pair of countries may not be balanced, i. e. . -.. . .. . .. . .. (3-16) 011' ’E 011 The trade of each country may not be balanced, i. e. , Xi#Ii..........(3-l7) Total world exports is equal to total world imports. K K TnZx-szlcoooooooooo(3-l8) . 1 . J 1:1 3:1 This assumption eliminates the necessity of con- side ring prices in the general model given by it! K». it 76 Equation (2 -2 5 ) . (6) Independence Assumptions (1) Independence of consignment size. World trade is made up of consignments of size B1, B2, . . . , Bn- The probability that a consignment goes from country i to country j (Pij) is independent of consignment size B. This assumption implies that world trade is made up of many decisions by many independ- ent producers and buyers. Each decision is small in relation to T, i. e. , LimEll=0. . . .. . . . .. (3-19) N900 B1, B2, . . . , Bn can be thought of as random samples from the population of N possible con- signments where the value of N is large. B1, B2, . . . , Bn are statistically independent of each other with a finite mean: N l3=(2 Bi)(N)‘l..........(3-20) i=1 ri‘ (ii) 77 and a finite variance: N 02 = [z (Bi-[5)2](N)'l . . . . . . . . . . (3-21) i=1 Independence of origins and destinations. The mth consignment from country i to country j (xijm) is independent of other consignments, i.e.. xijm (i=1. 2, . . . , k; j=l, 2, . . . . k; m = 1, 2, . . . , n) are mutually independently distributed. The expected value of xijm is equal to Pij' Using above assumptions we can now state the Savage-Deutsch statistical model: The probability of a consignment moving from country i to country j (Pij) is: =SSiD. for i#j O O o o o o 0 (3-22) (f7 78 Using (3-7) in (3-22): K —1 . . Pij = SiDJ-(l- Z Ska) for 1¢ J o o o o o a (3-23) k=1 K In (3-23) as the value of Z Ska is increased the k=1 value of Pij is also increased. Also, note that: K (a) S =00 iff Z S D = 1 which is possible iff k k k=1 K Sk = Dk = l. (b) Smin = 1 iff k§1 Ska = 0 which can occur iff Ska = 0 for all k. That is, 8:1 iff an exporting country is never importing or vice K versa which is impossible. (c) The value of Z Ska k=1 is maximized iff Xi = Ii' i. e. , if all countries per- fectly balance their trade which violates (3-17). (3-7) and (3-22) imply that the event of a con- signment coming from a country i does not affect the probability of it being impo rted to country j. This is known as the assumption of origin- destination independence. 79 (7) Si = 0 (Dj = 0) implies that country i (j) does not expo rt (import). S- 1 = Di = 1 is impossible. (8) For each country i x. + I. g T 1 1 Ecxi) + Bugs Em Pi + qi <1 pi + <1i él s< H 80 3. 4 Model of Solution The model described by (3-22) can be applied to KXK tables where only the diagonal cells are a prio ri zero and non-diagonal cell entries denote frequencies. A matrix of this kind is commonly known as a "KXK cross-classification table" or a "KXK contingency table. ”ii, In this case, the following system of equations and constraints when solved for Si and fij will provide estimates of the parameters Si and D5 in (3-22). X _J T 1. AA .1. = SDj(1-Sj) (j=1. 2. . . . , k) where T K A K ...(3-25) 1:1 j=1 A A s..>o;D>o 1 J A K S: 33.12) D.) 111. 1:1 -—A 1 Depending on the assumption made for the values of B1, B2, . . . , Bn two derivation methods can be used to solve (3-25) for §i and Dj: _11/ Goodman, L.A. , "A Short Computer Program for the Analysis of Transaction Flows, " 9E- cit. , p. 176. Ln"- lndeper. (3-22. . All d 303_ the 81 (1) If it is assumed that consignment sizes are equal to each other (B1 = B; = . . . = Bn) then the esti- mates obtained (gi and Dj)are the maximum like- lihood estimates of Si and Dj. (2) When it is assumed that B13)! B2 15 . . . 1‘ En, then the derivation of estimates must be based upon the method of moments. The system of equations given by (3-25) is based on independence assumptions (Assumption #6) of Section 3.2. Independence assumptions are necessary in order to apply (3-22) to a situation where the diagonal cells are a prio ri blank (zero) and non-diagonal cell entries are E frequencies. In this study, since non-diagonal cells denote impo rt- export data (which are not frequencies) independence assump- tions must be used to arrive at (3-25). However, the import- expo rt data in this study will not only give a matrix in which all diagonal cell entries are a priori zero, but also some non-diagonal cells are a prio ri zero. For example, the existence of war between Israel and the Arab League will give a priori zero values to the co rre- " Lt: sponding no: in addition 1 also lead 1: cells of the ..1 Si...) is charac: 74—. ‘A. 0 L1 ..4 \J I) Pd (A) /. \\ ( n 82 sponding non-diagonal cells in the impo rt-expo rt matrix. In addition to war, unavailability of data for a country will also lead to a prio ri blank values in some non-diagonal cells of the matrix. In short, the matrix A we are dealing with in this study is characterized by: (1) A priori zero entries in all diagonal cells (aij = 0 i=j). (2) A priori blank entries in some non-diagonal cells (aij = 0 i a! j). (3) Magnitudes (not frequencies) in the remaining non- diagonal cells. The system of Equations (3-25) contain 2K+l unknowns and 2K equations. Therefore, a direct solution technique cannot be used to solve the system simultaneously. Instead a recursive solution technique must be employed. The Savage-Deutsch recursive methodE/ does not converge on an appropriate estimate of Si and DJ. values. Goodman—_l3/ 1_2_/ Savage, R.I., and Deutsch, K.W.,gp. cit., p. 558. 13/ Goodman, L.A. , "Statistical Methods for the Prelim- inary Analysis of Transaction Flows, " 22. cit. , p. 201. proxides a c is similar s Alter prcce tem of Egg, lg/ 83 provides a correct version of the recursive solution which is similar to the one developed by Alke b.1111 The Goodman- Alker procedure will be used in this study to solve the sys- tem of Equations (3-25). E] Alker, H.R., Jr., 2P: cit., p. 498. C) :1 IA\ 84 3. 5 Goodman-Alker Procedure Let the first approximations for/Si and DJ. be oooooooooo(3"26) In system of Equations (3-25) let 71.11=S§. and 1 1 ooooooeooo(3-27) 1 AA A. =SD. 1 1 As the first step, substituting (3-27) in (3-25) we get nil = spas?) and A1 A0 30 o o o o o o o 0 (3-28) 'i = Di’“' 1) K lb K 1 Since 2 7'51 and 2 Ai may not be equal to 1, (3-28) i=1 i=1 must be normalized to get Al K 1 sis-ml}; 7t and k=1k K 00.00.00.0(3-29) l filzall/z 4k 1 k=1 In the second iteration, solve system of Equations (3-25) for 71.22 = SS and Aiz = Sfii by using the new estimates ) (.1 *4. ‘Q 85 Al Al Si and Di . In other words, 1 ”.2 =§°(1-B.) and 1 1 1 ..........(3-30) Normalizing (3-30) will give us new estimates of §i A and Di as a result of the second iteration: 2 S: =7tgl Z 7! and 1 k=1 k e o O o o o o o o 0 (3-31) K . A2 2 D. = All 2: A: 1 k=1 In the third iteration, again solve (3-25) for fig, and A: by using S12 and Biz, etc. The number of iterations should be continued until the desired accuracy is obtained. The value of S need not be computed at the end of each iteration. Its value can be computed at the final iteration by using (3-7) Once the values of Si, Di, and S‘are determined, the theoretical size of trade from country i to country j which is denoted by Aij can be found from: AA A A... =SS.D.T o o o o o o o o o 0 (3-32) 13 1 J lite rati theoretical 1 relative ac: country 3], can range! “he: interprete no effect c trade 5:; bl the 5‘. trading C eXpla'm j aflECted 86 The ratio of the observed trade size (aij) to the theoretical trade size (Aij) is given by (3-10) as the relative acceptance (RAij) of exports from country i to country j. Theoretically speaking, the values of RAij can range from 0 to + co . When RAij = l in a non-diagonal cell, it should be interpreted that artificial and natural trade barriers have no effect on the size of trade, for, RAij = 1 iff the actual trade size is equal to the theoretical trade size determined by the size effects -- national incomes and populations of trading countries only. In other words, size effects explain 100% of the actual trade, leaving no "residual" affected by trade barriers. The greater the value of RA the greater "indication ij' [there is] that important factors [artificial and natural barriers] other than the size of trade of the originating and receiving [countries] have an influence on the observed amount of trade. "_12/ There are numerous ways to analyze the behavior of 15/ Savage, R.I., and Deutsch, K.W., op. cit., p. 566. RA. . values 1] till be i0 1" (1: G (2. .A (A) 87 RA,, values. In this study, a multiple regression model will be formed in order to test the following hypotheses: (1) Geographic distance between two countries has a significant inverse effect on the flow size. (2) Preferential trade arrangements between two countries have a significant positive effect on the flow size. (3) The more favorable a country's (i) location with respect to its trading partners, and (ii) its inter- nal transport connectivity, the greater its trade. (4) Political hostility between two countries has a significant inverse effect on the flow size. In Chapter 2 the effects of transportation costs, transit time, and psychic distance were combined under geographic distance. Therefore, the first hypothesis above implicitly involves cost, time, and psychic distance interaction rep- resented in Figure 2.2. The multiple regression model given by (2-25) is modified as follows in order to incorporate the above hypotheses: When tilt Goodman-Al given by l3- oi the four trade flows 88 -A .A -.':‘1 - ,1 l 2 3 ‘4 A = D'O So. C’ W00 0 o o o o o o o o o 3'33 R ij 110 1J 1J 1 1J ( ) When the RAij values are computed by applying the Goodman-Alker Procedure, the multiple regression model given by (3-33) will indicate the importance (or lack of it) of the four resistance factors in determining the size of trade flows . . 'I‘.~ F .. 4 1 ...... I * As sh the 3 I12". l"; '. The first 5 cedure to (out fit: is a 33:22 er'lijt a“: the theo :. The analysis relat'mm Dil' 515. In ti analysis Stage. CHAPTER 4: FIRST STAGE ANALYSIS: ELIMINATION OF SIZE EFFECTS 4. 1 Introduction As should be clear from the presentation of Chapter 3, the analytic part of this study contains two distinct stages. The first stage involves the use of Goodman-Alker pro- cedure to eliminate size effects from the actual trade flow (aij) from country i to country j. The result of this stage is a KXK matrix showing the relative acceptance values (RAij) which was defined as the ratio of the actual flow to the theoretical flow. The second stage involves a multiple regression analysis as an attempt to explain the degree of causal relationship between RAi- as the dependent variable and J Dije Sije Ci, and w.. as the independent variables. 1] In this chapter we shall present the first stage of the analysis. Chapter 5 will cover the multiple regression stage. 89 robab‘; trars‘pc rt is cal units a: minute dete Publishes 1. exPressed Item-by.i mam" SE: DOSlilCm nafiOnal the prok €021:an “Y int. HOWE VI and irA “be h 133E is m0 Urn. L11... ‘6 90 4.2 Data Bank Probably the first surprise to an analyst of international transport is learning that the flow data expressed in physi- cal units are either entirely lacking or exist in very minute detail. The re is no international body which publishes total annual trade flow data between countries expressed in metric tons or any other physical unit. Item-by-item tonnage data are available, however, for the many sections, divisions, subdivisions, groups, and basic positions of SITC (Revised) in the publications of inter- national organizations such as OECD and UN. Undoubtedly, the problem of finding a common physical unit to aggregate commodity flows from one country to the other precludes any inte rnational organization volunteering for this venture. However, a number of countries report total tonnage outflows and inflows on a yearly basis in their annual publications. When individual country publications are consulted, the language and differences in definitions appear as insur- mountable problems. A survey made at the New York Public Library, one of the UN Documents Centers, revealed that ‘. q 1.. ..4 3 liars-n only eight c annual stat either do : re : rt it ': l creating 2 to their :: trade 5:.2 abundaffl sion of 91 only eight countries among the 37 in our region have pub- lished country-to-country tonnage data for 1959 in their annual statistical papers. The remaining 29 countries either do not report total tonnage data by country, or report it by commodity groups -- by countries -- thus creating a problem of converting various physical units to their metric ton equivalents. On the other hand, when trade size is expressed in monetary units, there is an abundance of sources. This difficulty has led to an expres- sion of aij values in U.S. dollars. When individual com- modity flows will be analyzed -- in the second part of this study -- with respect to their transport policy implications, then commodity flows will be expressed in metric tons. Tables 4.1 and 4.2 give the initial “i' values for 1959 J and 1968, respectively. ..H... .H.“ i. _. . ti... .21.. f. . - -.... ..... ..~.. ....... :.; 3...... . ..'a. \.—.-v u..‘ no... '\ _‘.I.O _I. - Iv ..q \20! -..o.~ —...... a x.& ...o... ..2 .12 s..:.( \._uI ..I‘...‘ - «Car r...» _—rt.J 31...; lilos .7... _3:\o: _3:_.~ _quic... 1......1: I...\ ..CIL.\ .111 ....—. <1):vo 3WX~FI ~c (C—e in. 7:»- {o 2‘! 1:11. ~C\«2 . ,4.....~fl§ O eaahnus 9'vvll L'SQI ‘SNOILVN oaiimn s'ivvc L’fiOS 6’L I'SII Z'OC L. 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Although the eight countries are not drawn randomly from the population of 37 countries, the sample set can be considered repre- sentative of the region because it includes at least one from the industrially developed countries, the Communist Bloc, and the developing countries. The descriptive statistics at the bottom of Tables 4. 3 through 4. 10 give some insight as to the distribution of value and weight figures. First, as expected, the more industrially advanced the country, the greater the ave rage value and weight of its trade. This is true because a _1_/ For this computation Michigan State University, Agricultural Experiment Station's BASTAT Routine (Description #5) is used on the same University's CDC3600. I LL. ”able-1.3: .. ~-"—'—‘. . _ . Destlr‘att .. M.- fifgharfista: Austria Bulgaria Cyprus Czechoslsx Denmark Eastern C-e Tederal C-e Finland France Greece Hungary Iran Iraq Ireland lsrael Italy Jordan Lebanon tibya "ethe Ila: No Way Pakistan Poland Portugal Spain SWEden sthZerla Yria Turkey M. R. U. K. U, S. S, F Yug081a| DeSCrit m Mean Skew sourCe Trade’. W des A5 Ann mg» m 99 Table 4. 3: Exports from BeLLium to Selected Countries, 1959 e stinatio 11 Country Value (Mil. US $) Weight (Metric tons) Afghanistan Austria Bulga ria Cyprus C ze cho slo vakia Denmark Easte rn Ge rmany Fede ral Ge rmany Finland France G reece ungary ran raq reland fisrael ltaly Jordan Lebanon Libya Nethe rlands No rway Pakistan Poland Po rtugal Spain Sweden Switze rland Syria Turkey U. A. R. thK. U. S. S. R. Yugo slavia De 3 c riptive Statistics Total Mean Skewne s s Kurto sis «I U30 0 OU‘IQU'IONNOQNNm-QNKIUNWO ooqquap-‘omh-fioovko . ..‘ \O t—I \oont—I DO... I 2,275.3 68.5 3.20 13.08 0 145,230 10,556 0 29,241 516,355 77,605 3,357,017 196,232 4,057,045 176,735 40,475 71,807 74,869 229,344 26,423 562,303 0 37,237 0 8,047,297 240,866 73,267 63,574 225,981 185,297 675,748 1,180,956 52,279 53,144 42,395 1,384,386 27,587 71,467 21,932,718 645,080 3.55 15.76 Source: Value figures are from U. N. , Direction oLInternational Trade, Statistical Papers Series T, Vol. XI, No. 9, New York, 1960. Weight’figures are from Royaume de Belgique, Ministé re des Affaires Economiques, Institut National de Statistique; Annuaire Statistique de la Belgqu et du Com Belg; 1959, B ruxelles , undated. 100 Table 4. 4: Exports from Federal Germany to Selected Countries , 195 9 Destination Country Value (Mil. US $) Weight (Metric tons) Austria Belgium Denmark Finland France Llran Italy Nethe rlands Norway Spain Sweden Switze rland Turkey U. K. U. S. S. R . De sc r_iptive Statistic s Total Mean Skewnes s Kurto sis 467.3 593.1 337.5 145.5 788.1 122.9 524.5 825.4 246.8 103.2 544.5 573.8 113.2 395.7 91.1 5,872.6 391.5 .26 1.85 2,661,481 8,746,717 1,971,027 406,429 11,428,778 240,296 4,103,872 12,437,395 551,906 444,824 2,043,490 2,834,656 275,409 910,495 208,702 49,265,477 3,284,365 1.34 3.28 Source: Value figures are from U. N. , Direction of Inter- national Trade, Statistical Papers Series T,Vol. XI, No. 9, New Yo rk, 1960. Weight figures are from Bundesrepublik Deutschland, Statistisches Bundesamt, Statistiches Jahrbuch Fur Die Bundesrepublik Deutschland, 1960, Wiesbaden, 1960. Table 4. "“‘7—’ Cestma Afghani Austria Belgiu: Bulga r1 Cyprus Czechc Deruna: Easte r: Federa Firflanc' France Hunga: Iran Iraq Ireland (Stael Italy Jordan Lebanc Neterh Norwa Pakis: poland POrtug Roma; Spain SWede} SW’itZe Syria Turke. “U.A.F U. K, U.S.S YugOS 1%: Total Mean Skew. Sc Ur (g 1960, Xatic C033. \‘. 101 Table 4. 5: Exports from Greece to Selected Countries, 1959 Destination Country Value (Mil. US $) Weight (Metric tons) Afghanistan 0 0 Austria 3. 5 125, 783 Belgium 2. 4 9,443 Bulgaria 2. 0 4, 696 Cyprus 2. 4 3,654 Czechoslovakia 8. 2 54, 901 Denmark . 3 646 Eastern Germany 2.2 12,016 Federal Germany 41. 8 457, 887 Finland 3. 3 8, 306 France 14. 9 80, 038 Hungary 3. 4 6, 524 Iran 0 13 Iraq 1. 3 22, 985 Ireland . 4 1, 627 Israel 1. 0 10,040 Italy 15. l 47, 910 Jordan . l 0 Lebanon . 6 l, 969 Neterhlands 6. 5 110,227 Norway . 9 38,817 Pakistan 0 l, 517 Poland 4. 2 16, 369 Portugal 1. 0 5, 384 Romania 1. 9 8, 641 Spain . 2 15, 333 Sweden 2.1 15, 367 Switzerland 2. 2 5, 42 1 Syria . 4 1, 928 Turkey . 5 3, 165 U.A.R. 1.9 5,249 U.K. 19.0 199,602 U.S.S.R. 11.8 476,710 Yugoslavia 10. 4 36,045 Descriptive Statistics Total 165. 9 1,788,213 Mean 4. 9 52, 595 Skewness 3. 07 3. 01 Kurtosis 13.54 11.17 Source: Value figures are from U.N. , Direction of International Trade, Statistical Papers Series T, Vol. XI, No. 9, New York, 1960. Weight figures are from Royaume de Grece, Office National de Statistique, Bulletin Mensuel De Statistigue Du Commerce Exterieur Athenes, Nov. 1968. 102 Table 4. 6: Exports from Lebanon to Selected Countries, 1959 Destination Country Value (Mil. US $) Weigh: (Metric tons) Afghanistan 0 15 9 (Austria . 1 9, 022 Belgium . 3 5, 042 Bulgaria 0 3, 242 Cyprus 1.0 8,711 Czechoslovakia . Z 4, 652 Denmark 0 8, 244 Eastern Germany . 2 3, 389 Federal Germany . 9 24, 045 Finland 0 0 France 1. 0 9, 842 Greece . 9 2, 082 Hungary 0 338 Iran 1. 6 1 , 104 Iraq 3.1 14,544 Ireland 0 184 Israel 0 0 Italy 1.4 16,759 Jordan 3. 8 0 Libya 0 649 Netherlands . 3 8, 878 Norway 0 1, 340 Pakistan 0 67 Poland . l 839 Portugal 0 3 , 0 l 1 Romania 0 Z, 590 Spain 0 2, 561 Sweden 0 8, 364 Switzerland . 7 15, 127 Syria 6.6 105,230 Turkey . 2 848 U. A. R. . 7 9, 669 U.K. 1.4 210,141 U.S.S.R. 2.1 6,722 Yugoslavia . 3 2, 294 IiDescriptive Statistics Total 26. 9 489, 689 Mean . 8 13, 991 Skewness 2. 79 4. 32 [Kurtosis 11.35 21. 36 Source: Value figures are from U.N. , Direction of International Trade, Statistical Papers Series T, Vol. XI, No. 9, New York, 1960. Weight figures are from Direction Centrale de la Statistique au Ministére du Plan, Statistique du Comme rce Exterieur du Lib_a_n, Vol. 1, Sept. 1965. ‘ t "estzna. H E Afghani: Austria Belgiurt' Bulgari Cyprus Czechos Denmar Easte 1': Federal Finland France Greece Hungar Iran Iraq Ireland lsrael Italy Jordan LEbano Libya Xether r we... Pakist; p0 13110 FOIIUg ROman LSPain Sweder letZe Turke3 U. K, U,S.S. Y“8051 Tom Mean Skewm Ku "0s Source Trad 8121 re 1 1959, 103 Table 4.7: Exports from Syria to Selected CountriesLl959 Destination Country Value (Mil. US $) Weight (Metric tons) Afghanistan 0 6 (Austria 0 29 Belgimn 1.2 3. 996 Bulgaria 1.3 2,517 Cyprus 0 704 Czechoslovakia 3. 4 11, 12 9 Denmark . 4 6, 051 Eastern Germany . 4 924 Federal Germany 2. 5 10, 735 Finland 0 0 France 16. 1 31,001 Greece 0 2 Hungary . 6 1, 002 Iran . 7 122 Iraq 3. 3 12, 83 1 Ireland 0 0 118 rael 0 0 ltaly 5.8 11,241 Jordan 6.6 75,686 Lebanon 14. 7 104, 528 Libya 0 24 Netherlands . 3 l, 529 Norway 0 1 Pakistan 0 0 Poland 0 2, 642 Portugal 0 0 Romania . 8 1, 211 Spain 0 11 , 355 Sweden 0 45 Switzerland 0 231 Turkey 0 823 U. K. 4. 3 31, 928 U.S.S.R. 4.3 7,529 Yugoslavia . 5 1, 065 Descriptive Statistics Total 67.2 330,891 Mean 2. 0 9, 732 Skewness 2. 64 3. 23 Kurtosis 9. 46 12. 99 Source: Value figures are from U. N. , Direction of International Trade, Statistical Papers Series T, Vol. XI, No. 9, New York, 1960. Weight figures are from U.A. R. (Syrian Region), Mini- stere Des Finances, Statistiques Du Commerce Exterieur, Annee 1959, Damas, 1960. - ,_ a r ~ I'Iv‘ru an- 21;...4“-’ . . Table 4.5 r-‘——. iDestrnatz- Austria .Belgiurn l ulgaria Cyprus Czechos erunarl Easte rr. Federal Finland France Greece Hunger Iran Iraq Ireland Israel Italy JOI‘dar Lebam Libya Nethe as... Pakis Polan Pomu righanist Rona Saudi Spain SWed. Bwitz SYfia U.A. U. K. U.S Yugc 104 Table 4.8: Exports from Turkey to Selected Countries, 1959 Destination Country Value (Mil. US $) Weight (Metric tons) Afghanistan 0 O ustria 5. 3 25, 725 Belgium 7. 5 42, 420 Bulgaria 1. 2 3, 369 Cyprus . 4 1, 837 Czechoslovakia 11.7 42,258 Denmark 4. 4 61, 521 Eastern Germany 8.7 32,411 Federal Germany 79.6 557,466 Finland 7. 8 44, 199 France 16.5 157,104 Greece 3.1 32, 928 Hungary 6. 5 18, 885 Iran 0 17 Iraq 2.6 39,073 Ireland . 4 l, 419 Israel 8. 9 97, 946 Italy 29.4 259. 966 Jordan 1.6 8,117 Lebanon 13. 7 78,826 Libya . 4 3, 039 Netherlands 6. 8 46,236 Norway . 5 3, 914 Pakistan 0 0 Poland 7. 5 11, 466 Portugal 0 76 Romania . 5 4, 848 Saudia Arabia 0 5 Spain 2. 6 45, 502 Sweden 1. l 8, 840 Switzerland 8. 7 23, 252 Syria 4. 4 38, 859 U.A. R. 1.6 19,395 U.K. 34.0 91,092 U.S.S.R. 4.8 6,551 Yugoslavia 3. 6 19, 480 Descriptive Statistics Total 285.8 1,828,042 Mean 7. 9 50, 779 Skewness 3. 74 3. 93 urtosis 18. 25 19. 36 ( Source: Value figures are from U. N. , Direction of International Trade, Statistical Papers Series T, Vol. XI, No. 9, New York, 1960. Weight figures are from Institut National de la Statistique, Annuaire Statistique de la Turquie, No. 510, Ankara, undated. r—‘t—‘T‘ Destinatze Afghanis: iiustria Eelgium lBulgaria "\fprus zechc sl ' enmari: astern = Federal Finland France Greece Hungary ran Iraq reland Israel Italy Jordan Lebano Libya Xether NOrwa. Pakisn poland p0 ring Romar Spain Swede: SWIIZQ TUrke U,K_ U, S. S Yugo: {3&3 Total Mean 1..., Sourc Trad. 1960' of St; Gene 105 Table 4. 9: Exports from U.A.R. (Egypt) to Selected Countries, 1959 estination CountrL Value (Mil. US $) Weight (Metric tons) Afghanistan 0 0 Austria 7. 8 39,173 Belgium 4. 1 41,268 Bulgaria 3. 9 4, 486 Cyprus . 1 2, 906 Czechoslovakia 46. 6 90, 447 Denmark 1.2 11,747 Eastern Germany 30. 2 31, 940 Federal Germany 2 1. 9 79, 338 Finland . 8 2 , l 14 France 9.1 13, 054 Greece 3.1 51,178 Hungary 7. 2 7,240 Iran . 2 668 Iraq . 3 242 Ireland . 1 2, 960 Israel 0 0 Italy 21.0 1,136,387 Jordan 1.4 16,533 Lebanon 7.1 68, 762 Libya 1. 2 1, 197 Netherlands 8. 9 162, 682 Norway . 5 1, 849 Pakistan 0 1 Poland 16. 5 62, 467 Portugal 1. 1 901 Romania 8. 3 8, 569 Spain 5. 7 126, 845 Sweden . 8 4, 775 Switzerland 10. 9 18, 894 Turkey . 5 10, 308 U.K. 12.1 119,700 U.S.S.R. 81.4 76,979 Yugoslavia 10. 2 52, 881 DescriJJtive Statistics Total 324.2 2,248,491 Mean 9. 6 66, 132 Skewness 3. 05 5. 17 Kurtosis 12, 96 29. 04 Source: Value figures are from U. N. , Direction of International Trade, Statistical Papers Series T, Vol. XI, No. 9, New York, 1960. Weight figures are from U.A. R. , Presidency, Department of Statistics and Census, Annual Statement of F0 reign Trade: 1959, General Organization for Government Printing Offices, Cairo, 1961 fiustria Belgiurn lrdgana Eyprus Czechcsl erunark -astern Federal Finland France Greece Hungary Iran Iraq Ireland Israel Italy Jordan Lebano Libya Ntithe r Norwra. pakisn Poland P0 rtug ROmar Saudi, Spain Swede. SWIIZe SY ria 106 Table 4.10: Exports from Yugoslavia to Selected Countries, 1959 Destination Countpy Value (Mil. US 55; Weight (Metric tons) Afghanistan 0 0 Austria 21. 0 352, 759 Belgium 4. 7 45, 911 Bulgaria 8. 0 42, 069 Cyprus . 7 5, 912 Czechoslovakia 16. 4 63, 989 Denmark 1. 3 3, 830 Eastern Germany 26.7 151,113 Federal Germany 44. 8 832, 992 Finland . 3 975 France 11. 6 57, 096 Greece 14.4 61, 023 Hungary 13. l 330, 034 Iran 1. 0 2, 738 Iraq 1. 1 2,212 Ireland 0 0 Israel 3.4 32,268 Italy 57.7 1, 183,237 Jordan . 8 4, 377 Lebanon 2. 2 45, 592 Libya . 7 21,279 Netherlands 6. 1 42, 130 Norway 5. 5 10, 543 Pakistan 1. 1 32, 589 Poland 33. 9 159, 355 Portugal 0 0 Romania 1. 8 8, 916 Saudi Arabia . 3 6,297 Spain . 9 15, 936 Sweden 3.8 33,017 Switzerland 10. 1 49, 571 Syria 0 0 Turkey 1. 9 7, 965 U.A. R. 14.6 86,462 U.K. 34.0 161,629 U.S.S.R. 47.2 264,007 Desc_riptive Statistics Total 391.1 4,116,923 Mean 10. 9 114, 359 Skewness l. 66 3. 30 Kurtosis 4. 81 13. 76 Source: Value figures are from U. N. , Direction of International Trade, Statistical Papers Series T., Vol. XI, No. 9, New York, 1960. Weight figures are from Socijalisticka Federativna Repub- lika Jugoslavija, Savez ni Zavod Za Statistiku, Statistika Spoljni Trgovine SFR Jggoslavije, 1959, Beograd, 1960. develop a devel thesa: the sec discre produc for F. obseri great: In 0th is act is $,5 vials “(For SYfia avera trade to the Vail,“ 107 developed country exports mo re in an absolute sense than a developing country. The largest average trade value in the sample is $391. 5 million for Federal Germany, and the second largest is $68. 5 million for Belgium. The great discrepancy between F. Germany and Belgium is partially produced by using only 15 observations -- buying countries -- for F. Germany, whereas the subset of Belgium has 34 observations. Also, the subset of F. Germany shows a greater concentration on industrially advanced countries. In other words, average trade size value for F. Germany is actually inflated. The least average value of trade size is $. 8 million for Lebanon, and the next in line is Syria with $2 million. Since trade data include only domestic exports, the figure for Lebanon is considerably lower than Syria. However, if re-exports were also included, Lebanon's average trade size would be considerably higher due to the trade of Beyrouth free trade zone. Secondly, all value and weight distributions are skewed to the right, signifying a concentration of trade size around values smaller than the mean. Also, gene rally the skewness of we skew: 0f 5: C01' 4.1 inte 1101 IS/ 108 of weight distributions is considerably greater than the skewness of value distributions. Third, all value distributions, except Federal Ger- many, and all weight distributions, are lepto kurtic.§_/ Generally, weight distributions are mo re peaked than value distributions . After noting these general characteristics, an analysis of simple correlation coefficients will follow. Simple correlation coefficients, together with the corresponding significance levels, are presented in Table 4. 11. As expected, in all eight countries the direction of interrelationship between weight and value is positive. In six of the eight sample countries, the simple co rrela- tion coefficients between value and weight is significant at . 0005 level. Only in one country -- UAR -- the degree of _2_/ Kurtosis is a measure of peakedness of a distribution. An index of kurtosis is computed by dividing the 4th. moment about the mean by the square of the 2nd. moment. When the value of this index is equal to 3, the distribution is normal (mesokurtic). When it is <3, the distribution is flatter than the normal curve (platykurtic). When it is >3 the distribution is more peaked than the normal curve (leptokurtic). it; “mils..- HIM“ ESSC sig: of be ES CO CO f0 109 association between weight and value cannot be assumed significant at an acceptable level. Table 4. 11: Simple Correlation Coefficients between Weight a1_1_c_1 Value for Selected Expo rting Countries, 1 95 9 Level of Country Number of r r2 Significance Observations for r Belgium 34 . 976 . 952 . 0005 Federal Germany 15 .871 . 758 .0005 Greece 34 .785 .617 .0005 Lebanon 35 .429 .184 .010 Syria 34 .793 .629 .0005 Turkey 36 . 949 . 900 . 0005 U.A.R. 34 .216 .047 .220 Yugoslavia 36 . 825 .680 .0005 Since no assumption can be made as to the distribution of r values around the population correlation coefficient (R) because the number of r observations is small (:1 = 8) an estimate of R can be made only by computing the rank co rrelation coefficient. The Pearsonian rank correlation coefficient (frank) between mean weights and mean values for 8 countries is equal to . 952 which is significant at the . 015 level. iii .j.mln"l‘l'l.- d‘I ' Pllr .376 Iron univ attr fro: fro: bets exp P03 flOn 110 Applying Tchebycheff's Inequality to the case of UAR, 1 P(lruar ' rrankl ) karrank)s £2 for k = 1. 2 0' = 9 ( rrank . 378) shows that the probability that ruar differs from rrank by more than 1. 92 standard errors of rrank is equal to or less than .27, indicating that ru is more likely drawn ar from a different universe of weight and value figures than the universe from which other countries are drawn. The significant deviation of ruar from rrank can be attributed (a) either to the fact that weight figures are taken from individual countries, whereas value figures are taken from one source (leading to an inevitable disagreement between two sources due to definitional differences) or (b) to the speculation that the commodity composition of exports from U. A. R. to the 34 countries differs significantly. In conclusion, it can be said that there is a significant positive relationship between value and weight of trade flows among countries within the region. 4.4 trad exp? 5ch par 111 4.4 Elimination of Size Effects, 1959 Data To compute the theoretical trade sizes from actual trade data, the Goodman-Alker recursive procedure explained in Section 3. 5 of the preceding Chapter is used. In six successive iterations the desired accuracy level of 10"4 is achieved.§/ Table 4.12 contains the data from which the recur- sive procedure started and the estimates of the model parameters obtained at the final iteration. The theoretical cell values (Aij) are then computed by using Equation (3-32). The value of S is computed by apply- ing Equation (3-7) at the end of the sixth iteration. This value turned out to be equal to 1. 17967892. The value of K E Ska used in Equation (3-7) is equal to . 15231216. The k=1 value of T used in computing Aij is equal to $83, 925. 1 million. It should be noted that in arriving at this value, 2/ The program is run at Delta College's (University Center, Michigan) IBM 360 systemwith 16K storage. E“? 15"..." -..1...- Afgha: Austr: Belgit Bmga Cypr1 Czec? Dena East: Fede Finlz Frar GTE! hum Irar lrac Ire] Isr. Ital J01 l Table 4. 12: Proportions of Trade and Estimates of Model Parameters, 1959 112 Pro po rtion Model Pro po rtion Model Country of Exports Parameter of Imports Parameter of Exports of Imports . ’s’. LIT 13. X1/T 1 1 1 Afghanistan . 00089 . 00076 . 00071 . 00060 Austria .01153 .00989 .01364 .01168 Belgium .03926 .03453 .04101 .03601 Bulgaria .00479 .00408 .00601 .00512 Cyprus .00063 .00054 .00137 .00116 Czechoslovakia .02058 .01774 .01909 .01648 Denmark .01664 .01434 .01908 .01641 Eastern Germany .01943 .01676 .02002 .01726 Federal Germany . 11689 . 10972 . 10166 . 09681 Finland . 00995 . 00851 . 00993 . 00849 France .06690 .06000 .06063 .05468 Greece .00243 .00208 .00673 .00572 Hungary . 00913 . 00780 . 00941 . 00804 Iran .01105 .00941 .00628 .0053? Iraq .00723 .00615 .00388 .00331 Ireland .00433 .00369 .00709 .00603 Israel .00214 .00182 .00511 .00434 Italy . 03450 . 03030 . 03981 . 03480 Jordan .00010 .00009 .00132 .00112 Lebanon .00053 .00045 .00380 .00323 Libya .00014 .00012 .00135 .00115 Netherlands . 04298 . 03801 . 04694 . 04137 Norway .00965 .00830 .01568 .01341 Pakistan .00381 .00325 .00421 .00358 Poland .01364 .01174 .01692 .01451 Portugal . 00346 . 00294 . 00564 . 00480 Romania .00622 .00530 .00598 .00510 Saudi Arabia . 00992 . 00843 . 00223 . 00190 Spain . 00599 . 00512 . 00947 . 00807 Sweden . 02628 . 02245 . 02866 . 02486 Switzerland . 02017 . 01745 . 02293 . 01978 Syria .00119 .00101 .00212 .00180 Turkey . 00423 . 00360 . 00527 . 00449 U. A. R. (Egypt) . 00528 . 00450 . 00734 . 00625 U.K. .11530 .11199 .13312 .12710 U.S.S.R. .06483 .05812 .06045 .05441 Yugoslavia . 00568 . 00485 . 00819 . 00697 Rest of World. .28229 .35379 .24692 .32380 lTotal 1. 00000 1.00000 1.00000 1.00000 Note: Totals may not add to 1. 00000 due to rounding at the 10-5 digit. trade: the“n reade: Seci: in Ta' prete ners. coun- 1j V The size; 'Iabl (Sue effe. trad 11.,- so t rea] in} 113 trade size between pairs of countries both of which are in the "rest of the world" is ignored, i. e. , Q38, 38 = 0. (The reader is referred to the convention stated in paragraph #2, Section 3. 3 of the preceding Chapter.) The matrix of 1959 theoretical trade flows (Aij) is given in Table 4. 13. The value appearing in each cell is inter- preted as the size of flow due to the ”size” of trading part- ners. In other words, if all resistance factors between country i and country j we re nonexistent, then the value of Aij would be the size of trade from country i to country j. 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The matrix given in Table 4. 14 will be used as the input data for the dependent variable in the multiple regression analysis of the next Chapter. .(.: . all ..‘ .1in REL! 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N O H.9mm rmm> 0.300 I9.~20 anvwn 9.H2 Aooannnconv ZM2I .— h m N N 20»: 0.033 tbxm om.wm9 —.3—~ H22 Huvwm 9.H2 Anonnwscon3 Acnx C>rm c.x. 222 CHAPTER 5: SECOND STAGE ANALYSIS: MULTIPLE REGRESSION 5 . 1 Introduction It is appropriate at this point to review analyses made thus far and point out what remains to be done. Starting with the actual inter-country trade data for 1959 and 1968, the Goodman-Alker procedure explained in Chapter 3 was used in Chapter 4 to determine the theoretical inter-country trade flows. Theoretical trade flow values presented in Tables 4. 13 and 4. 16 in Chapter 4 give the trade size from one country to the next under conditions of equal resistance. In other words, if there were no spatial and locational distor- tions and if there were no deviations from the normal pattern of artificial barriers, then trade from one country to another in 1959 and 1968 would be expected to be equal to the theoretical trade flows shown in Tables 4. l3 and 4. 16, respectively. However, spatial and 129 130 locational distortions undeniably exist and the re are important deviations from the normal artificial barrie rs; for example, wars or political hostilities are negative, and preferential trade agreements are positive deviations from the normal pattern. Due to these distortions and deviations the actual trade size is not expected to be equal to the resistance-free theoretical trade size. The purpose of this Chapter is to determine the effects of these distortions and deviations on the trade between countries. To achieve this purpose a multiple regression analysis will be used to make an estimate of the para- meters and to assess the significance of each independent variable in explaining the values of the dependent variable in the following model: -./1 AZ A -A4 = 1 3 .. - RAij “AoDij Ci Sij WIJ o o o a o o o o o o (5 l) where RAij is the relative acceptance of trade from country i to country j, or the ratio of actual trade values to theoretical trade values. 131 Dij is the geographic distance between country i and country j. Sij is the preferential trade arrangement between country i and country j. Ci is the composite locational index of country i. Wij is war or political hostility between country i and country j. .10, . . . , A4 are parameters. 132 5. 2 Operational Data RAi- values for 1959 and 1968 are computed in J Chapter 4. Specifically, Tables 4. 14 and 4. 17 of Chapter 4 give RAij values for 1959 and 1968, respec- tively. The distance chart for 1959 is given in Table 5.1. Table 5.2 presents the distance chart for 1968. In com- puting 1968 distances apprOpriate adjustments are made to reflect a route change from the Suez to the Cape of Good HOpe. Tables 5.1 and 5.2 do not include port-to- port distances only. Starting from the premise that the foreign trade of a country is neither produced nor con- sumed at the port of exit or entry, the distances between the port and the approximate economic center of the country are added to the port-to-port distances. The ports and hinterland distances to the approximate economic center of the countries in the region are given in Table 5. 3. It is assumed that no significant shift in the approximate econo- mic center occurred from 1959 to 1968. unhic D:5':n'e mums M11es:3em_e_n Countnes, l‘itn Czechoslovakia I D 199 400 i 350‘ Portugal Rmrarvva 0 12,382 2,326 10,29 Saudi A, non; >pa‘m Sweden 5,030 12,¢57 we en 5w“; 2,040 11,190 3 errland 5 1‘) 1,942 12,249 2,206 2,139 TUY‘M“; 750 12,132 1,974 1,691 500 Uniiedr rah Reuublit 1,506 1,077 2,050 1,779 (210 Unit: Ara Repu 1c United ngziom 11,755 3 5c, 3 3 3,751 11,645 1,194 1,009 3,688 55 3,517 6 Unit—ed Kingdom U. .S.R. 1.900 13,514: 1,604 2,041 1&4 2,231 '.,031 ,,1-14 1,9“ 1,895 13,1{2 750 2,970 1,200 13,081 2,950 5,684 2,161 1,393 2,049 2,175 . . . 12,474 2,374 3,061 1,217 5612 1.302 1,502 1,140 3,2. 1,024 12,010 gm 2,140 500 11,963 1,922 4,506 1,536 1,744 1,559 1,606 3,325 2,552 [: o Yugosavia Source: and the A 13,3311“. 1:!‘0 lukcn from U S , . . Hvdrographic 05m», Tabln of Distances Between Ports, Washington, D. C., was. 1n1.mr1 dilunces are ’Aken {rum us, Department 0‘ 1he Army, the Navy. 1am», 0111431 Table of Distances: Washington, D. c., tuber 1958, Table 5. 3: Ports and Inland Distances to the 135 Economic Center of the Countrx Country Po rt Inland Distance (Miles Afghanistan Karachi 800 Austria Trieste 250 Belgium Antwe rp 50 Bulgaria Burgas 150 Cyprus Limas sol - Czechoslovakia Trieste 400 Gdansk 500 Denmark Copenhagen - Eastern Ge rmany Wismar 200 Federal Germany Hamburg 250 Finland Helsinki 100 France Marseille 350 LeHavre 100 Greece Pireaus 100 Hungary Trieste 350 Iran Abadan 300 Iraq Bas ra 200 Ireland Dublin - Is rael Haifa - Italy Genoa 200 Venice 250 Jordan Beirut ZOO Lebanon Beirut - Libya Tripoli - Netherlands Rotte rdam - Norway Oslo 300 Pakistan Ka rachi 400 Poland Gdansk 300 P0 rtugal Lisbon - Romania Constanta 200 Saudi A rabia J iddah 30 0 Spain Barcelona 300 Bilbao 200 Sweden Stockholm 200 Switzerland Genoa 200 Sy ria Latakia l O 0 Turkey Istanbul 200 U.A. R. Port Said 150 United Kingdom London 150 U.S.S.R. Odessa 850 Le ning rad 500 Y ugoslavia Rijeka 200 Source: All except Bulgaria, Czechoslovakia, Eastern Ger- many, Hungary, Poland, Romania, Saudi Arabia, and U.S.S.R. are taken from H. Linnemann, An Econometric Study of Inter- gational Trade Flows, North-Holland Publishing Co. , Amster- dam: 1966, pp. 223-225. For remaining countries distances from ports to economic centers are assumed by the writer. 136 The composite locational index for each country is computed by using Equation (2-18) developed in Chapter 2. In this computation the value of [51 is assumed to be equal to unity. The index values for 1959 and 1968 are given in Table 5. 4. The effects of preferential trade agreements (trade stimulating artificial forces) and war or political hostility (trade reducing artificial forces) on the dependent variable are estimated by the use of dummy variables. Since the model given by Equation (5-1) is of logarithmic - linear type, to avoid the impossibility of dealing with the loga- rithm of zero, the following values will be used for the dummy variables: = 1 No preferential trade ties exist. S. . 13 = 2 Both countries are members of the same preferential trade group. = 1 War or political hostility exist between the Wij two countries. = 2 No war or political hostility exist between the two countries. Admittedly, the numerical values assigned to Sij and Wij are largely arbitrary. "Despite this fact, . . . the 137 Table 5.4: Locational Index Values for 1959 and 1968 Country Index Value 1959 1968 Afghanistan .2241 1. 0318 Austria 1,179.7961 2,830.0648 Belgium 6,996.7949 14,843.5920 Bulgaria 134. 8393 224. 1061 Cyprus 230. 3862 1,575.2084 Czechoslovakia 495. 7393 2, 157. 6090 Denmark 3,685. 9121 8,193.6931 Eastern Germany 1,285. 7854 2,102. 2966 Federal Germany 3,650.6943 8, 349.2889 Finland 904. 8385 1,788.8506 France 11,141.0293 27,217.8181 Greece 192. 6393 436. 9380 Hungary 671.6808 1,065.7813 Iran 3.6362 5.1190 Iraq 6.6936 9.0748 Ireland 2,061.1499 3,785. 7269 Israel 344.3472 510.7763 Italy 933. 8633 2,262. 0128 Jordan 20.4595 73. 3101 Lebanon 224. 2476 636. 1949 Libya 2. 7583 69. 5224 Netherlands 2,652. 5908 5,205. 6940 Norway 933.4465 1,854.8159 Pakistan 2. 5928 2.1170 Poland 482. 3961 750. 6875 Portugal 132.4219 259. 9660 Romania 184. 8945 278. 9028 Saudi Arabia 3. 1121 3. 3877 Spain 233.2476 513.6184 Sweden 1,770. 9810 4, 141.2237 Switzerland 4, 478. 6660 9, 539. 7380 Syria 35. 6575 39. 9311 Turkey 35. 5031 65.7776 U.A.R. 21.2847 25.7832 United Kingdom 2, 504. 3120 4,181. 5692 U.S.S. R. 224.0506 371.5146 Yugoslavia 297.2520 611.1225 138 results obtained by such [an arbitrary assignment] procedure tend to be invariant, for all practical pur- poses, to any reasonable method of assigning these numbers. "2., In 1959 the following group of countries had pre- fe rential trade relations: 1. British Commonwealth of Nations :2] United Kingdom Ireland Cyprus Pakistan 2. The Communist Bloc: Bulgaria Czechoslovakia Eastern Germany Hungary Poland Romania U. S. S. R . Yugoslavia 3. Arab League of Nations: Iraq Jordan Lebanon Libya Saudi Arabia Syria United Arab Republic l/ R. Ferber and P. J. Verdoorn, Research Methods in Economics and Business, The Macmillan Co. , New York: 1962, p. 372. _2_/ H. Linnemann, An Econometric Study of International Trade Flows, North-Holland Publishing Co. , Amster- dam: 1966, p. 72, 139 A fourth group, namely, the European Economic Community, is added to the above to complete the list for 1968: 4. Common Market: Belgium Federal Germany France Italy Netherlands Therefore, Sij values for 1959 are assumed to be equal to 2 for the first three groups. For 1968, all four groups' Sij values are taken as 2. The remaining country pairs in the region are given the value of 1. As for war or political hostility in 1959 and 1968, W.. values 1J 1. Between The Communist Bloc countries and Belgium, Denmark, Federal Germany, France, Iran, Ireland, Israel, Italy, Netherlands, Nor- way, Pakistan, Portugal, Spain, Sweden, United Kingdom, except between Italy and Yugoslavia 2. Between Israel and Iraq, Jordan, Lebanon, Libya, Saudi Arabia, Syria, U.A.R. 3. Between Turkey and Greece are assumed to be equal to 2, with remaining Wij values being equal to 1. 140 5. 3 Multiple Regression Analysis of 1959 Datai/ In the first section of this Chapter, the general format of the multiple regression model was presented by Equation (5-1). In the preceding section, the numeric data for this multiple regression exercise we re identified. The data inputs for 1959 were run for two types of general regression models: (1) Additive format, whereby the independent variables are assumed to be related to each other in a linear fashion such as: RAi.j = 10+ Al Di, j+’12 (31+ .13 Si,j+'14 Wi.j . . (5-2) (2) Multiplicative format where the independent variables are assumed to be related to each other in a logarithmically linear fashion as shown in Equation (5-1). Table 5. 5 shows the parameter estimates and the statistical significance of the additive (linear) multiple _3_/ For the analyses of this and the next section the LSDEL Routine at the CDC 3600 in Michigan State University is used. Access to this routine is provided through a grant from the Graduate School of Business, Michigan State University. 141 Table 5. 5: Parameter Values and Related Statistics of the Linear Multiple Regression Model, 1959 Std. Error Partial Parameter Regression of Regression Correlation Beta Coefficient Coefficient Coefficient Weight 20 -5.2429 1.1945 - - 21 -0.0004 0.0001 -o.12 -0.11 12 -0.0001 0.0001 —o.05 -0.05 13 8.9059 0.7242 0.36 0.37 14 _1.0227 0.5153 -0.06 .0.06 142 regression run. The multiple correlation coefficient is . 42, with the multiple coefficient of determination being equal to . 18 and the standard error of estimate being 6. 34. The results indicate that for all practical purposes the linear model does not adequately explain the variation in the dependent variable. Of the four independent varia- bles preferential trade relations (.13) provide the greatest contribution to an explanation of the variations in relative acceptances (because its beta weight is highest), but even this variable has a low partial correlation coefficient. The conclusion reached is that the linear (additive) model shown by Equation (5-2) does not adequately explain the values of relative acceptances for 1959. Another multiple regression run with the same data for 1959 was made for the multiplicative format given in Equation (5-1). The results of this run are shown in Table 5. 6. The multiple correlation coefficient and the standard error of estimate we re 0. 63 and 0.44, respectively. 143 mooo.ov mm.o- nm.o- ~o~2.o omwm.a- we mooo.ov 2m.o mm.o wann.o omuo.~ m< noo.o no.o- ao.o- omHo.o 2mm0.o- N< mooo.ov mm.o- nm.o- onmo.o woom.o- 2< ~ mooo.ov. - - 2~42.o wm28.2 o< GUddUmmgmw “GOMUMWHOOU &AHOMUMHHOOU ”—qOMUMwaonU mo H954 330.3 .3me ooflflouuou nommmoumom mo Gowmmouwom nouofimummn annnnm nonnm .Bm 321.2082 cannonwom 33:32 3855285583 on”. no mofimfimuw wouddom odd m03d> Houofioumm no .m 393. 144 The locational index (.12) is the least significant of the independent variables in explaining the variations in rela- tive acceptances. When this variable was eliminated from the model, the multiple coefficient of determination was reduced from 0.401 to 0. 397 with no significant re- duction in the multiple correlation coefficient. This variable's insignificance probably results from its being constant per country, thus indicating the necessity for further study to develop a better index of location. The other three independent variables are significant in predicting relative acceptance values. Their signifi- cance is approximately equal to each other with distance leading the other two. In conclusion, the model and parameter estimates for 1959 can be expressed as follows: (RA..) 2 1.6138 D:-.0'5S.z.°o Wil'5 . . . . . . (5-3) 10 1959 11 1J 1J or 5.2. (RAi°) :106138 —“ 1‘] o o o o o o o o o 0 (5.4) J 1959 Wij \(Wij Dij The general trade and transport policy implications of these equations will be covered in Section 5. 5 and a detailed analysis will follow in Chapter 6. 145 5.4 Multiple Regression Analysis of 1968 Data Since the linear exercise on 1959 data clearly showed that the additive model is not a good tool, the linear model is not run on 1968 data. The results obtained for the logarithmic-linear model are given in Table 5. 7. The multiple correlation coefficient was 0. 78, the coefficient of dete rmina- tion . 62, and the standard error of estimate 0. 39. A comparison of Table 5. 6 with Table 5. 7 shows that, in general, the results for 1968 are not too different from the results for 1959. How- ever, 1968 data seem to give a better fit than 1959. Again, the least significant variable is the loca- tional index. Although the statistics related to this variable are slightly improved when compared with 1959, it is still justifiable to drop the variable from the model due to the low partial correlation coefficient and beta weight. 146 88.3 3.9 and- 33.... 2.84. 3. 88.3 35 and 325 2.3.2 as. moo.o oo.o- ~2.o- Hmoo.o mwoo.o- ~< 88.3 and- $5- 28.0 285.. 5 noo.o - - mwn2.o 82m~.2 o< oonnofimmnm 230880 300580 308330 no 7504 3303 30m nomugonnou Gawmooumom mo noflomoumom neuoEmumnH 28.530 nonnm .Bm w ho “1:332 :03 a mafia m 39392 n .0034 u 385? mm 04 05 mo moflmflfim woumaom was m03d> nouogmnmm "N. .m 3nt I) n l 1 . bx) . . . H-..) A1..\ 1 I .I . . a ll 1 .11-- . . . .1.-..-..\ 51.11.11. I- “‘lL-’i.ll"l'l--l-lf- - - a -. .. . 147 The effect of distance on the dependent variable appears to be clearer in 1968 than in 1959. The partial correlation coefficient and the beta weight of distance in 1968 are significantly higher. The value of the distance parameter (.11) also jumped from . 50 to . 62 which indicates that the countries in the region have become more distance conscious. This is partially due to the closing of the Suez, which, in some cases, led to a more than 50 percent increase in the distance between countries. The increase in distance made the unit transport cost so high that either marginal markets shrinked, or transit times increased. Both of these results have undoubtedly led to smaller amounts of trade between nations who used the Suez as a pre-war gateway to reach markets. Another possible reason for the greater distance sensitivity could be the decreasing trend in the real prices of agricultural commodities traded in the world market. The unit value of agricultural commodity exports of developing countries remained unchanged from 1959-1960 148 to 1965-1966, whereas, in the same period, the unit values of the same exports from developed countries increased by 8 percenhi/ A mo re dramatic comparison is the unit value of world exports of primary products and manufactures between 1953 and 1966. From 1953 to 1966 the unit value of primary products decreased by 4 percent, whereas the unityalue of manufactures in- creased by 11 pe rcent.§/ When this reduction in value is coupled with increased distances, the obvious result is a reduction in trade and a greater sensitivity toward distance. Another interesting difference between the 1959 and 1968 parameter estimates is the decrease in the constant term from 1.6138 to 1.2316. When the two years' models are compared the calculated relative acceptance values for 1968 are consistently lower than the corresponding values for 1959. This is mainly due to increased dis- tances and a lower A value for 1968. 0 _fl_/ GATT, International Trade 1966, Geneva: 1967, p. 45. _5_/ Ibid.g p. l. 149 5. 5 Imjlications of the Model The role played by distance and Turkey's potential in offering trade stimulating forces within the region by reducing the distance between trading partners can be made clearer when we reconsider the model estimate given by Equation (5-4). It should be remembered that Sij and Wij are dummy variables whose values are either one or two, whereas the values of Dij for 1959 range from 100 to 8,268 miles. Undoubtedly, any nation seeking to increase trade with another should not be engaged in war or political hostility with that nation. When a nation is "friendly" with the other, the value of Wij is one which reduces Equation (5-4) t ° 2 5.. (RA. =l.6138———1-L—- ..........(5-5) 191959 J? 1j ‘ As will be seen from Equation (5-5), the ideal trade position for a country is to achieve a bilateral preferential trade arrangement so that the value of Sij will be equal to 2, and minimize the distance so that the denominator of 150 Equation (5-5) is low. For countries like the United Kingdom and the EEC group where the distance between each other cannot be reduced or the cost of transport cannot be sub- stantially reduced, the next best thing is to eatablish pre- ferential trade arrangements, because such arrangements will quadrupleé/ the relative acceptance levels.Z/ Turkey cannot offer any potential benefit by being a transit point for the trade between the United Kingdom and EEC countries. However, the potential for Turkey lies with reducing the distance between East and West. For instance, ocean service from Genoa to Iskende run and rail connection from Iskende run to Iraq will reduce the 1968 distance from Italy to Iraq from 12, 542 miles to approximately 2, 700 _6_/ In Equation (5- 5) the value of Si . is equal to 1 when two countries have no preferential trade arrangements. 51,5” when such arrangements exist. Assuming no change in distance, which is the case between the United Kingdom and EEC, RAi - value increases four times when two countries entelr into a preferential trade arrangement. 1/ The relative acceptance value was defined as the ratio of actual trade to theoretical trade. It will be remem- bered that the theoretical trade was determined by population and income of trading countries which do not significantly change in a year. Therefore, any change in the relative acceptance value during the short run is due to a change in the actual trade size. 151 miles. Assuming no change in the preferential trade arrangements between the two countries, Equation (5-5) shows that this reduction in distance will more than double the relative acceptance value. In the next Chapter the relative acceptance value of each potential secondary trade flow will be computed in order to put Turkey's role as a transit point into proper perspective. 152 5. 6 Conclusion As a result of the analyses of this Chapter the following conclusions can be derived: 1. The hypothesis that distance has a significant negative effect on trade size is accepted. 2. The hypothesis that location has a significant positive effect on trade size is temporarily rejected, until a more reliable index of location is developed and tested by further research. 3. The hypothesis that political hostility or war has a significant negative effect on trade is accepted. 4. The hypothesis that preferential trade arrange- ments have a significant positive effect on trade size is accepted. In the next Chapter a general trade policy for Turkey will be outlined on the basis of the analysis made in this Chapte r. CHAPTER 6: A GENERAL TRADE POLICY AND POTENTIALS FOR TURKEY 6.1 Introduction The analyses made so far indicate the importance of distance, preferential trade arrangements, and poli- tical hostility on the trade between two countries. In this Chapter the potential role for Turkey will be outlined with respect to two distinct but closely related dimensions: 1. The potential of preferential trade arrangements on primary external flows. 2. The potential of reducing distance through gate- way transit service on secondary external flows. 153 154 6.2 Preferential Trade Arrangements and Primary External Flows Turkish trade potential will be greatly increased when Turkey becomes a full member of the Common Market. Turkey has entered into a preparatory stage of membership to the Common Market by the Ankara Agreement enacted on September 12, 1963. The Agree- ment stipulates (with provisions to increase) an initial period of eight years for the preparatory stage, followed by transition and final stages. The normal period for the transition would be twelve years. Some Turkish planners humorously state that Turkey will become the "common market of the Common Market" by being a full member. Yet the relative dependence of Turkey on the Common Market can be shown by a com- parison of 1968 relative acceptancesl/ of Common Market nations with Turkey and the United Kingdom. The com- parison is evident in Table 6. 1. _1_/ Relative acceptance (RAi.) was defined as the ratio of actual trade size to the theoretical trade size. 155 o n. a. n. a. n. a; m. 582.39 m .2 o n. n. m. m . a. m. 08889 8:5 o4 m. o; o.~ “4 >4 >4 0.“ UHHo mno>< m. w. m4 o w. m4 ~.N H.m nonmauofioz a; v. N; a. o n; m; a. in: m. 0. m4 o; o; o v; H.N conunh n; m. m; m; N; 4.2 o mm; 308302206012 0. v. ~.~ ~40 b. m.~ 54 o gwmaom .n 80v 3M OHM . mung 53:00 o.H\EourA 91.98 UofiGD ommuo>$nuo£oz Eflioosmuh Honoooh Eowmfiom 32 £82.32. 83 nfiflfim 8285 £91.34 £05800 mo moonmufloooaq. o>3m~om S .o 3an 156 As will be seen from Table 6. 1, Turkish exports to individual Common Market nations are always lower than the exports of Common Market countries to other countries in the Common Market. In one case, namely, Turkey to the Netherlands, versus Common Market nations to the Netherlands, the difference is more than threefold (.6 versus 2.0). On the import side, Turkish imports from Federal Germany and Italy are higher than the average Common Market imports from these nations. It should be stated that Federal Germany and Italy were among the main suppliers of machinery and equipment for six dams and a number of other major government projects in Turkey. Therefore, the import figures of 1968 from Federal Germany and Italy to Turkey do not reflect the "normal” level of trade flow from these nations. In the remaining three cases (Belgium, France, and the Netherlands) the Turkish imports are again considerably lower than the ave rage imports of the Common Market from these nations. The case of the United Kingdom is clearer than the 157 case for Turkey: In both imports and exports the figures shown in Table 6. 1 for the United Kingdom are considerably lower than the ave rage Conunon Market figures. It could be argued that the low trade levels between the United Kingdom and EEC in relation to the trade of EEC countries with each other is due to the effect of longer distance be- tween the United Kingdom and EEC than the distance among EEC countries. However, Table 6.2 shows that, even at comparable distances, the ratio of actual trade to theoretical trade (relative acceptance) from the United Kingdom to EEC countries is considerably lower than the ratio from one EEC country to another. The cases in Table 6.2 indicate the potential of preferential trade arrangements on trade size. Turkey is already mo re dependent on the Common Market than on the United Kingdom and might under pre- ference expect to become even more interdependent. This trade growth under preference might warrant Turkish con- side ration of early full membership to the Common Market and an urgent evaluation of other potential preferential 158 m . o .H mmw mmw oonmuh 33H 5 . m .2 m mm m cm >580 no 23 menu 382 a . N . N m 8 $3 538.2 00 :2 meow mean: 2: 02 w . a . N $4 $1.. 833an 852m w . a . m 3. m E Eszmzom mean: 2:02 m . m .N m2. 3% 802m 8533 n . z .4 E... E 8320502 5233 a nose auuoooO Am 03$: an 3500 twuunooo want 09»: auunooo mafia can: 233500 F3550 mafia can: 1.33.900 woman and: 0w an an: 00 was? 0mg mafia comm u .M . D mas.” oan was .M . D mafia axm ooqmumoooxw o>3d~om . Gavan—om mooamumab Sommmflvm vocab 08. use OHM 5 mooqmumoooma o>flo~om 8:3 monmumwfldmwummaoo mommo mom: o>floo~om "No 3nt 159 trade arrangements with the Middle Eastern nations. However, no attempt should be made for a blind entry into any preferential trade arrangement on either a regional or individual basis. Clearly, other factors such as commodity composition of exports and imports, domestic production and consumption patterns, industry- wide productivities and cost structures, commodity wide price and tariff elasticities of demand, trade quotas and proposed concessions, etc. , are to be critically evaluated before a decision of entry into any type of preferential trade arrangement can be made. These and other factors are not within the scope of this research. Therefore, further study and evaluation will be needed before pursuing a pattern of preferences. 160 6. 3 Secondary External Flows and Transit Service Potential 7 6. 3. 1 Secondary External Flows and the Suez Canal The closing of the Suez Canal after the Six Day War in 1967 has led to an increasing use of the South African ocean routes for trade between Europe and North Africa on one hand, and South West Asia on the other. A cur- sory review of Tables 5. 1 and 5.2 in Chapter 5 indicates that, in some cases, the 1968 distances are more than threefold the corresponding distances in 1959. The distance elasticity (111) of the relative acceptance values were -.5 in 1959 and -.62 in 1968 (from Tables 5. 6 and 5. 7). In other words, other things being equal, as distance increases the relative acceptance value decreases by an amount approximately equal to the difference between the square roots of the old and new distances. The potential for Turkey rests with this relationship between distance and relative acceptance. When Turkey assumes an active role as a transit and gateway service point for the third country flows, the reduced distance will increase the relative acceptance value. It should be 161 remembered that the relative acceptance values were derived by dividing the actual trade by the theoretical trade. Since the increase in relative acceptance is not due to changes in the "size" effects, the theoretical trade values will remain unchanged. Therefore, an increase in the relative acceptance values due to a decrease in distance will only be possible by an increased actual trade. In the next two sections some potential trade routes through Turkey will be identified and the increase in actual trade values will be computed on the basis of reduced distances through Turkey. 6. 3.2 Potential Trade Routes In order to gear the Turkish transport system to service secondary external flows a number of potential routes must be identified. The issues related with the development of these routes will be raised in Chapter 8. In identifying trade routes, water-rail or motor-rail coordinated transport services will become a necessity. 162 Figure 6.1 identifies 12 trade routes through Turkey. A brief description of each route follows. East-West Routes. Railroads and highways link Turkey with Europe. Trade movements between EurOpean countries, on one hand, and Iran, Iraq, Afghanistan, Pakistan, and Saudi Arabia on the other, can use the following alternative routes: 1. Trade of Iran: a. b. Route 1. Highway entirely. Route 2. Rail entirely. This route is not possible at the present because of a small section in East Turkey under construction. The Turkish and Iranian governments agreed to connect the two countries by rail. The Iranian portion between Tabriz and the Iran- Turkish border is completed. On the Turkish side, an extension between Mus and Van is recently completed. To complete the pro- ject, a 75-mile link between Van and the border is presently under construction. 163 _ Z "3 4 EON. 11% u—; , 3 «G1 M 2033.30 330m and mo cinnamon“ “on who moumm #039." songs Boom NH . . . . J $nt 3 Gum m "boomed HmHA1 Sutu UR [HAN 1660 PAR1 wééu CYPR 13.. 16nd 1.46 3H~u Lr6A PAnl fihbu 5 r w: 356 AFUH [#49 [~54 Q;n| SAAK >1"! U)5~ “LLU LItC Una“ bubn 11666. 1153”. 11130. 111’). 111556 1131“. 11190. 11661. 1dU“1o 1059». 1(0516 11b“). 119506 11J)”. IUidOo 10090. “555. IJUUOI 1(VUho N’JCI “6“]. 9661. 1(5“do 1(b51. 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(819. 10,6]. #991. £551. 5“J“Jo “(0’0 7l47v. 7V“IOO ’bhlo l“blo 7J9£ho abdu. 5419. 3HVTbQO I‘DZOQUO “Ilszo MJHZQU. lHJdHUo ’0“l0]o ”9‘50 ‘HJHOOQ JJOII. 70979. «91190. “01410 (200‘. ‘UJ6JU0 OU’VUbo dbl (be (:1 (59 (55 (be (a! (5n (by (0U (bl dOd 80} (On (05 (be (bl (no anv {/0 (ll (Id (IJ (In (I: (Io HI! (In div (no (at 172 should be interpreted as optimistic estimates. Actual cost data per ton-mile as well as the sensitivity of trade due to transit time reductions are not available. How- ever, the most pessimistic estimate of actual trade increases should not be less than 30 percent of the optim- istic estimates given in Table 6. 3. The last two columns of Table 6. 3 give the estimated transit tonnage through Turkey. The optimistic estimate assumes that all trade will be diverted through Turkey, thus establishing a maximum potential. The pessimistic estimate assumes that only 30 percent of the trade is capable of being diverted through Turkey and therefore sets the transit tonnage potential on a more conservative level. The pessimistic transit trade estimates give Turkey a good starting point to seek an active role as a transit service point in the intra-regional trade and to convince the member nations of the region to dive rt trade flows through Turkey. 173 6.4 Estimates of Transit Tonnage through Turkey The optimistic and pessimistic transit trade estimates given in Table 6. 3 were arrived at by using the weight- value analysis outlined in Section 4. 3 of Chapter 4. The pessimistic potential increase indicates that the total third country trade flows through the Turkish infrastructure is expected to be around 26. 3million metric tons per year. The total optimistic estimate is around 87. 5 million metric tons. The infrastructural capacity of the Turkish transport network and its adequacy to handle this tonnage will be dealt with in Chapter 8. The estimates of trade increases given in Section 6. 3. 3 and weight estimates given in this section are based on a decision rule which compares the 1968 distances, assuming that the Suez is closed, with distances through Turkey. It can be argued that the closing of the Suez is not a long-term proposition. Therefore, any attempt by Turkey to gear its transport infrastructure and investment to secondary external flows based on the assumption of the inability of the Suez is a speculation with little premise. 174 To make the value and weight estimates independent of the Suez, an answer must be provided to the following question: How much trade will continue moving through Turkey even when the Suez is open? In order to answer this question, a decision rule similar to the one explained in the previous section was used with 1959 distances instead of 1968 distances. The expected increases in actual trade are given in Table 6. 4. As will be noted the estimated increase in actual trade ranges from 1.5 percent to 83. 3 percent. The optimistic estimate of total transit trade tonnage is 59. 2 million metric tons. The number of potential secondary external flows has dropped from 281 to 263 when the Suez is assumed to be open. 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(Jobwl. 103/(v9. VnHuH. «6’1“. 81005]. (0(0J3u. 11b216. ’OHlU‘. vwlb. UdeJ. JJOI’. ,UQIV. «vllvu. (9635. l“°l“. 09611. 60,905. (bJ 859 (53 (56 (3] (53 (3V (DU (01 (cc (OJ 179 180 6. 5 Conclusion In this Chapter it is concluded that a general trade policy for Turkey should be geared toward becoming a full member of the Common Market and other regional preferential trade systems, and to take an active role in becoming a transit point serving secondary external flows estimated to range from 26. 3 to 87. 5 million tons when the Suez is closed and from 17. 7 to 59.2 million metric tons when it is open. Chapter 7 will review the Turkish national transport system and external economic relations. Chapter 8 will consider major problems and potentials in the Turkish national transport system. CHAPTER 7: A REVIEW OF TURKISH NATIONAL TRANSPORT SYSTEM AND EXTERNAL ECONOMIC RELATIONS 7 . 1 Introduction In order to study the implications of the results obtained so far on the Turkish national transport system and trade policies it is necessary to review briefly the historical development and the present situation of the transport system and trade policy. This Chapter is intended to provide some basic facts and information about the Turkish economy, planning, its targets, problems, and policies within the context of transport and trade policies. 181 182 7. 2 Economy Description Turkey is an industrializing country which relies on both private and public establishments in the develop- ment of economic activity. Table 7. 1 shows the trend of economic and social development with respect to a selected set of criteria. Table 7.2 indicates a signi- ficant shift from an agriculturally based economic structure to that of industry and services. 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UHEOnooHuowoom "H .h 3an 184 Table 7.2: Relative Importance of Sectors in GNP Sectors . Years _ 1927 1938 1948 1950 1958 1961 1965 GNP (%) 100 100 100 100 100 100 100 Agriculture (‘70) 67 48 53 52 44 42 38 Industry (%) 10 16 14 16 22 23 27 Services (%) 23 36 33 32 34 35 35 Source: Devlet Planlama Teskilati (State Planning Office), Birinci Bes Yillik Kalkinan Plani (First Five Year Development Plan) Ankara: 1965, p. 2. 185 7. 3 Planning in Turkey Governmental interest in planned development in the history of the Turkish Republic took its comprehensive form in the early 1960's. When the Republic was founded in 1923 the new Turkish State set an example to under- developed countries in pursuing economic and social development. However, the planning efforts in the 1930's were mainly isolated to a few industrial sectors. Comprehensive planning encompassing all industrial and service sectors was first introduced immediately after the 1960 revolution. Article 41 of the 1961 Constitution endorsed the democratic regulation of economic and social life: Economic and social life shall be regulated in a manner consistent with justice, and the principle of full employment, with the objective of assuring for everyone a standard of living befitting human dignity. It is the duty of the State to encourage economic, social, and cultural development by democratic processes and for this purpose . . . to draw up development projects.l/ _1/ State Planning Organization, Introducing Turkey:s_ State Planning Organization, Publication No. 3, Ankara: 1963, p. 5. 186 Article 129 calls for a plan to achieve economic, social, and cultural development. An interesting fact is that almost a year before the Constitutional referendum, the revolutionary govern- ment created the mechanism through which planning for development could take place by establishing the State Planning Organization on September 30, 1960, and detailing its functions, organization, and preparation of five-year plans and annual programs. The First DeveIOpment Plan embraced a five-year period from 1963 through 1967. The Second Five Year Development Plan's time perspective is the period 1968- 1972. Both plans explicate economic and social objectives to be attained by implementing detailed annual programmes and projects. 187 7.4 Objectives, Targets, Problems The Second Five Year Development Plan states the general economic objectives of Turkey as follows: . . . to achieve a rapid and sustained increase in per capita income, . . . to achieve a balanced development between various regions and income brackets, . . . and to attain an efficient and stable improvement in the . . . economic structure..2_/ One of the targets set in the Second Plan in order to attain the above economic objectives is a 7 percent annual growth in GNP. In addition, the Plan calls for an expansion in the industrial sector toward making it the leading sector of the economy”?! The Plan identifies three structural obstacles (problems) which restrict the attainment of these targets..’y The first obstacle is insufficiency of domestic savings to meet increased investments in order to support the chosen growth rate. The second obstacle is entitled "ins titutional impediments restricting development" 2/ l'f-‘IW \ State Planning Organization, Second Five Year Development Plan: 1968-1972, Ankara: Central Bank of the Republic of Turkey, 1969, p. 13. 3251., p. 75. 11314. 3 PP. 46 ff. 188 which groups problems facing agricultural and indus- trial organization and efficiency. The third obstacle is import capacity as a means of providing an ample supply of raw materials, component parts, and equip- ment from foreign sources. When the second target, industrialization, is considered, the importance of this obstacle can easily be appreciated: Import capacity must be increased to finance machinery, equipment, and raw mate rial purchases from abroad, all of which are needed for the pursuit of industrialization. Import capacity falls within the general area of external econo- mic imbalances within which chronic deficits in foreign trade and balance of payments drain investment capital (needed for purchases from abroad) which undermines industrialization and economic development. In spite of the important role played by external trade and services in attaining the targets set, the long-run trend in this area is characterized by the fact that it did not increase parallel to the increase in national income. "Hence, its effect was to restrict rather than _. . “a3” l|||II|II| _ 189 to induce economic development".5_/ For example, between the years 1962-1966, GNP increased by 29. 5 percent, while the volume of foreign trade increased by 20.8 percent. As a result foreign loans were neces- sary. However, since Turkey has borrowed heavily in the past, 55 percent of loans secured from 1962 to 1966 was used for payment of the principal and interest of former debts. Therefore, aid in recent years was insufficient to remove the third obstacle, or to put it differently, to provide the necessary funds to increase the import capacity. A vicious circle should be evident by now: to attain a rapid economic development, import capacity must be increased through increased savings and imports which is only possible through economic development. This phenomenon which is referred to as ”vicious circles of pove rty"..6_/ is characteristic of the pre- and post-takeoff 5/ 33:39., p. 47. 6/ Gill, Richard T., Economic Development: Past and Present, Englewood Cliffs, N. J. : Prentice-Hall, 1963, p. 28. 190 stages in economic development. It is discouraging to note that the stage of ”takeoff" in Turkey started in 19371/ and since then, in spite of various measures taken, Turkey is still trying to reach the stage of "self-sustaining growth. " It took Great Britain 19 years, France 30, Belgium 27, U.S.A. 17, West Germany 23, Sweden 22, Japan 22, U.S.S. R. 24, and Canada 20 years to move from takeoff to self- sustaining growth“?! The ave rage period in the above cases was 22.5 years. Since 1937, although 36 long years have passed -- longer than any one of the above nations -- the re is no hope that the ”miracle" will occur in the near future. 7/ Rostow, W.W. , The Process of Economic Growth, New York: Norton and Company, 1962, p. 282. 8/ Ibid. 191 7. 5 Turkish Transport System The transport sector in Turkey carries the char- acteristics of any mixed economy in which the private and public enterprises operate together in competition. While rail transport is performed by a state-owned enterprise, Turkish State Railways (TCDD), motor transport is generally done by very small private estab- lishments. Water transport is done by both public and private lines. Air transport is the exclusive domain of Turkish Airlines (THY), a public enterprise. The trend in highway and railway system mileage is given in Table 7. 3. The slight decrease in highway mileage in 1962 is due to a reclassification of roads which resulted in a transfer of mileage from provincial to rural class. There is a minor amount of inland barge traffic interrupted during winter months. Howeve r, since three-fourths of Turkey is surrounded by water, domestic maritime transport is significant. The total inland water mileage is estimated around 8,000 kilomete rs”?! Fo rty-six 2/ Cillov, Haluk, Turkiye Ekonomisi Bunyesi (The Structure of Turkish Economy): Istanbul: Orhan Mete Matbaasi, 1967, p. 10. 192 Table 7. 3: Transport SLstem Mileage-Histo rical State and Year Provincial Roads(Km) Railroads(Km) 1923 18,335 3,756 1939 40,932 7,324 1950 47,080 7,671 1960 61,542 7,865 1961 60,818 7,886 1962 59,611 7,882 1963 58,451 7,911 1964 58,404 7,929 1965 58,792 8,008 1966 58,792 8,008 1967 58,792 _7 8,008 Source: Devlet Planlama Teskilati (State Planning Organization), Kalkinan Turkiye (Developing Turkey), Ankara: Milli Egitirn Basirnevi, 1969, pp. 79, 82. 193 percent of railroad mileage was constructed during the late nineteenth and early twentieth century. For some strange reason the Ottoman Empire provided a premium per kilometer of railroad laid by the French and German builders in addition to other measures of encouragement such as exclusive mining and agriculture rights within a 10-kilometer area on both sides of the railroad. Since there we re no controls on mileage, the railroads built during that time period show a continuous snake -like pattern even in the smoothest terrain. This mistake of the past is carried to the present, for operating a rail service on these lines cost much more than it would if the principle of shortest possible link were to be observed. Figure 7. 1 gives a map of the Turkish transport network in 1963. The distribution of transport system utilization by modes is given in Table 7.4. The motor mode has the highest share of passenger and cargo transport, with rail following in both. Passenger transport in water shows an insignificant level with minor fluctuations on a steady $2 ":35. :0 can: 51:; «3.45.3. l\ «2333“: .l. 7 I J a . run—ll: . . ~J<.fluum&&m . N . ........ 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However, when international water traffic is added, the total waterborne ton-kilometers exceeds the motor mode. The air mode is the least important in passenger and cargo transport in absolute terms. However, the rate of growth in the air mode has been dramatic, especially in cargo transport. The State Planning Organization estimates that the rate of infrastructural utilization never exceeds 20 per- cent and the utilization of vehicles is around 50 pe rcent._l_(l/ A review of Figure 7. 2, Map of Practical Capacities of State Roads as of the End of 1960, and Figure 7. 3, 1961 Highway Traffic Flow Map, reveals that the estimated infrastructural utilization rate is generally true with the exception of serious bottlenecks in and around the cities of Istanbul, Ankara, Izmir, and Antakya. Figure 7. 3 also reveals interesting data on the concentration of flows and, therefore, economic activity in the Northwest and West. l_(_)_/ Devlet Planlama Teskilati (State Planning Organization) Karayolu Tasimasi (Highway Transport) Ankara: 1964, p. 12. «nu—53 lllJ'u’luJ 2 \N\ \(sszfih3liiv 382.. :54; .. as: .3531!- nxfi 28‘»: 1:35 H; :‘3‘ Mk‘h » 23.25. 3.8 325.... .So- - .o. 48153 15.6- 1 % 3i aafiwuke .u x 1.02...qu Fa.— Svfiz‘xu‘ >31: . ( E! a .9... 3%! R a 23K 5. 3.3.8.... 23! so: - 8. . 83 232.33. 35: 08 u 8a.. 3 —NJ>8 fit .35 {on hw4>wo 000 2.8 «.538 32882 3:53: I. «in 3: 5. \\“3.& .wxfiq m‘sCtRSS «5:38 \\ :32 u my...- Isolm ‘ ‘ \ a ‘ \ §AQ>NQ§§JJ§§¥1 I I 5...... 1.].- 3...’ .l: iii... 1 53.511... 0 91.2.; . 25-5%51 3%? \‘ ‘. , , an. , H”. \ 1...... @ kn” . .D.. is $.81 \ dzsgagi :4 \ ,. v ..u . n» «Wrxnw' Vz ‘5 7 , w .. '1! 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The corresponding percentages for 1968 do not show a significant variation (exports to European countries 72 percent, and imports from Europe 71 per- cent). However, some shifts are noticeable in the distribution of trade within Europe. Notably, trade with the European Communist Bloc shows a gain at the cost of trade with the EEC. There is also a gain in imports from the Middle East, but the Western orienta- tion in foreign trade is clearly evident. Regarding the commodity composition of trade, from 1948 to 1965, on the average, 75 percent of Turkish exports we re agricultural products, 20 percent capital goods, and 5 percent other commodities and services. Although a minor reduction is observed in the former percentage during recent years in favor of the latter two percentages, it can be generally said that agricultural products will continue to be the most important item of Turkish exports for many years to come. Regarding imports, 36. 6 percent of total imports in 1964 were capital goods, 55. 6 percent raw materials, and 203 only 7. 8 percent consumption goods. In future years the percentage of capital goods will increase while the last two percentages, especially raw mate rials, will decrease. Principal items of expo rt are cotton, fruits and nuts, tobacco, minerals, or products derived from minerals. The fruit and nut market is concentrated in the United Kingdom, while cotton is exported mainly to the EEC coun- tries. Some smuggling takes place along the Syrian, Iraqian, and Iranian borders in livestock, tobacco, and opium. The effect of smuggling on the balance of payments is not known. 21.1] On the import side, machinery is imported mainly from Federal Germany and the United States. The chief sources for crude oil and petroleum product imports are the United States, Saudi Arabia, Iraq, and the United Kingdom..1_£/ Federal Germany is the main supplier of _Ll_/ Roberts, Thomas D. , et a1. , Area Handbook forthe Republic of Turkey, Prepared for the American Univer- sity by Systems Research Corporation, Washington, D. C. : U.S. Government Printing Office, 1970, p. 333. _1_2_/ A pipeline agreement between Turkey and Iraq signed on August 27, 1973, provides a long-term source of crude oil from Iraq, which is an indication that imports from Western countries will be significantly reduced. 204 automotive equipment and parts, and railroad rolling stock. Since 1960 Eastern Europe's share of the Turkish import market in machinery and parts has steadily in- creased. Construction mate rials and machinery are mostly imported from the EEC. Recent progress in automotive and petroleum industries has reduced Tur- key's dependence on imports of these items. Sixty per- cent of oil needs are now produced in Turkey and in 1967 Turkey started production of the first automobile at an initial annual rate of 6, 000 units. In spite of recent strides to reduce imports of consumer goods, the need for imported industrial products for development purposes has increased sharply in parallel to the objectives of industrialization and a 7 percent annual growth in GNP. Balance of Payments. The period 1923 through 1929 is characterized by excessive imports over exports result- ing in deficits in the balance of trade and invisible items. From 1930 to 1946 Turkey could maintain a trade surplus due to increased demand for agricultural com- modities and minerals before and during World War II. 205 However, since 1947, exports fluctuated widely while imports have grown steadily, creating continuous deficits. Turkey's balance of payments for the period 1950-1968 is shown in Table 7. 6. There are a number of reasons to explain Turkey's limited ability to export, thus cir- cumscribing her import capacity: 1. The principal exports are agricultural commo- dities and minerals whose prices fluctuate con- siderably. The increasing deficit is attributable to the decreasing trend in the export price index and increasing trend in the import price index. Table 7.7 and Figure 7.4 show the import and export price indices from 1956 to 1965. As will be noted, there is a general decrease in the export price index and a general increase in the import price index mainly due to the trend displayed by the import of capital items. The price index for consumption goods shows a general decline, but since its importance in the total Turkish imports is very small, this decline ID 0 2 .00 .0 .002 208232. 00 02202200 0220 0o 022.002 202022000 2mmv2dmm N00220: .D..H. 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' m , '1‘ . tn , . -..-..-._ ,1 ..oo , Cb. , o H . N . . . . l , H “ ”*‘m ’ Ln ' \D ' \D \O \O "" —7--._.._-__4 r...- -..-2.4.27- 7. 7.....- 7 77.777..— - . 7 -7--,7, 77.7. 7 .... .0 ... -7 JV. . .7-.- L ,; ,_j ’Q‘ f 0" . CT‘ " O‘ 0‘ C‘ 0‘ ' O‘ 0‘ 7‘ . . A ‘ . .. . l I . . . | . f' "" lp—c ‘1' Fr! IHF‘H ”1 T ' v—t -- o—o FF! #4 HH . - .2..'. . , I I .__ . - . . L i . Y I Y I n I . . . . I g . ' ‘ . n ‘0': o o u~ . t I. . . ' . .s g .- I 4 I t .. ¢ I x . ‘ ' I 0 I - . ~ g o - I I . I . 1‘ . . . I . ' . . . L | ¢ 1’-.- -.o. . , . . .1 . .t. . I o— 9 - . 7 .777 7 .' . .. .-. . I e r . b . . . - . . . . 2 . 3 Y .- ‘b—O—H—A—w—&2w6—— 27 - 7 7 -..--7 . fi . 7727-7 - o- 77 7- 77 2.?.7. 71} —-- u - . -. .--- -. 2‘ 7 7 a. I , . , '. . . . . . . . . I ‘ . I l 00 2, . . . . . 7 . . . . . . ..l . .. 7 1 . . l i‘ , 6.. s... . , - . . f. . - I . > u o . t - l 0 - -| t - II ....I. ,, ..... .;.. . . .+.. ..‘ . . .. ...‘ ‘. . n #0 ‘ t r _04 +______.... ‘ , -27.- ‘ ! . - - . I ‘ 0 , ' '~ I . . . . I ! g c . . i ' y I I I 1‘ I ; I «I u l ‘- ... $~ . s a. 7 t s I . “kg-.... 0*- ‘H--74 m7h--—+~--7 a-- -2... .707—72 F“"‘"”‘°+" >---—o—o7¢——-o- 7--o-- ‘4—-—~ - -. § 7 7 . i . . . 7 7] ..... . ,. ,.. . ..... t g . . , .? . ‘ . 1 I ‘ l J o 209 does not have a significant impact on the deficit balance. The real impact comes from the general decrease in export prices and a general increase in the prices of capital goods' imports, a significant item of total imports. This point will be clearer if the last column of Table 7. 7 is carefully observed. Foreign trade ratios are found by dividing each year's expo rt price index by the corresponding import price index. Even if the price index of exports were to remain con- stant, an increase in the price index of imports will necessitate a higher amount of exports for an unchanged amount of imports. Table 7. 7 shows us that the ratio has continuously fallen from 1956 to 1961, increased in 1962 and 1963, and started to decrease again in 1964. This gene rally decreas- ing trend is mainly attributable to the continuous decrease in export prices rather than the general increase in import prices. Another reason for the limited ability to expo rt is 210 the lack of standardization in cotton production and a high rate of substitutability for cotton products by more durable, cheaper, standard- ized, and convenient synthetic fibers. 3. Mineral exports, notably chromium, have also been reduced due to increased use of synthetics and a decline in demand in the mid-1950's. Foreign Debt. As of December 31, 1967, Turkey's external debt amounted to $1. 8 billion of which $581 million was for accumulated interest and service charges. The principal creditors are the United States ($729 million), Federal Germany ($305 million), the United Kingdom ($115 million), OECD Consortium ($849 million), and Multilateral creditors such as the European Monetary Authority, Euro- pean Investment Bank, IMF, and IBRD ($377 million).l.3_/ Since the total of exports and other invisible receipts falls short of total expenditures in the balance of payments, 12/ Organization for Economic Cooperation and DeveIOpment, "Turkey's External Debt Position as of December 31, 1967, " Internal Document Consortium, Turkey, Paris: 1968. I: i. n 211 Turkey has to rely on foreign debt to finance purchases of capital goods from abroad in order to meet the objectives of industrialization and a 7 percent growth rate in GNP stipulated in the Five Year DeveIOpment Plans. However, a good portion of newly secured foreign debt is used for repayment of earlier loans and interest. For example, of the $308 million borrowed in 1966, $174 million was used for debt repayment and interest. Only the remaining $134 million could be used to finance imports of capital goods for development projects. CHAPTER 8: THE TURKISH NATIONAL TRANSPORT SYSTEM -- PROBLEMS AND ADJUSTMENTS 8 . 1 Int roduction The results outlined in Chapter 6 clearly indicate . the potential role of Turkey in becoming a transit point in East-West trade which will be significant in mitigating the chronic balance of payments deficit and improving her import capacity. The present transport system is not geared to such service and would require a major overhaul to serve well. In order to realize this potential role, the planners in Turkey must overcome a number of existing difficulties. The first purpose of this Chapter is to describe the present system and identify problems of changing it. Another responsibility of the planners is to estimate the necessary investments in the infrastructure so that the transport system would be geared to external flows including gateway or secondary flows. This consti- tutes the second purpose of this Chapter, namely, (i) to identify major problems in trade routes and service 212 213 facilities in order to make Turkey an active partner in the intra-regional trade, (ii) to point further areas of research, and (iii) to offer suggestions for implementation. The next Chapter will conclude this study by offering a tentative program and timetable for implementation. 214 8.2 Some Problems in the National Transpo rt System 8. 2. 1 The National Transportation System 1. Institutional Problems. The administrative structure of the present system can best be described as disorganized. The same subfunctions are performed by different agencies. Lack of coordination among the responsible agencies result in dysfunctional programs and projects. Table 8. 1 gives the breakdown of func- tional responsibility by numerous agencies. It must be admitted that Table 8. 1 unde rstates the present problems of inter- and intra-modal coordination because it does not include other public agencies such as the State Planning Organization, Office of the Prime Ministry, Ministries of Finance, Industry, Customs and Monopolies, Com- merce, and Energy and Natural Resources whose policies, programs and controls have a significant indirect effect on the transport system. In spite of this understatement the seriousness of the problem is readily apparent: coordination. In the motor mode, the infrastructural responsibility is divided among three Ministries -- Table 8. 1: Breakdown of Functional “ ‘Lility in the Turkish Transport System Fs tablishments Eursuasiq uOIanJ15u03 uoiqonlisuooag Buisuaoij uouonnsuooag uoiioni PUBLIC SECTOR . Ministry of Transport: a Ministry . ) State Airport Administration Office ) State Railways . . . . )Maritime Bank, Inc. . . . ) Maritime Transport, Inc. I) Turkish Air Lines . . Ministry of Construction: 7 a) Directorate of Railway and K Waterway Construction . b) Directorate of Airports and Fuel Facilities . . . . c) State Highway Department Ministry of Interior . Ministry of Rural Works , Ministry of Forestry . . Provincial Governments . ®m>hw Pro Me (Directorate ransportation Coo Devlet Planning 5 Wmemrt on WW" L ‘and D ‘ r Ankara: 1971» P- 9- 216 Construction, Rural Works, and Forestry -- and nearly seventy provincial governments, each main- taining their own construction equip'nent, facilities, and crews. The same duplication is evident in the rail and air infrastructures between the Ministries of Transport and Construction. The situation in the water infrastructure is even worse. For example, 5 ports and 2 quays are operated by the State Railways, 4 ports and 6 quays by the State Maritime Bank, 2 ports by the State Coal Authority, 30 quays by municipalities and 4 quays by provincial governments. The problems of coordination have been admitted by the State Planning Organization ever since Turkey entered the era of planned development. The first Five Year Plan calls for a cen- tralized and coordinated administration. _1_/ The Second Five Year Plan repeats the issue by stating: Transportation services and the relevant activities are handled by numerous individuals and organiza- tions, and consequently, coordination cannot be Devlet Planlama Teskilati (State Planning Organization), K_alkinma PlaniLBirinci Bes Yil: 1963-1967 (First Five Year Development Plan: 1963—1967), Ankara: 1963, p.386. 217 established. Liaison between the ope rational and constructional organizations could not be e stablished. 2., From the redundancy in the 1971 Annual Programme it is clear that the problem is not solved yet.§_/ There are three main reasons which account for the failure of efforts during the last nine years to bring about coordination among various agencies: (a) The legal structure and institutional framework by which the construction, operating, and user agencies are governed are not conducive to the creation of an efficient and coordinated trans- port system. (b) An information gathering system which would gene rate correct and useful data to promote coordina- tion among many agencies does not exist. 2/ State Planning Organization, Second Five Year Development Plan: 1968-1972, Central Bank of the Republic of Turkey, Ankara: 1969. p. 606. ;3_/ Devlet Planlama Teskilati (State Planning Organization), Ulastirma Koo rdinasyon Proje Me rkezi Mlidiirl'u‘gii (Directorate of Transportation Coordination Project Center), Kurulus ve Gelisme Rapo ru (Report of Founda- tion and Development), Ankara: February 1971, p. 15. 218 (c) In addition, there is a serious lack of statis- tical data to enable analyses on transport costs, input-output balances, and cost/benefit relation- ‘ ships. 1 i, A solution found by the Turkish Government was the L l establishment of a Council of Transport Coordination in May 1970. As a matter of fact, this Council did not come into existence voluntarily, but is an outcome of an agree- ment on Transport Coordination and Railroad Survey Special Fund Project between the U.S. Agency for Inter- national Development and Turkey, enacted on March 3, 1969. In Section 4. 14 of this agreement, the Turkish Government agreed to establish a unit for transport coordination within 14 months; otherwise, the U. S. Government was empowered to cancel aid from the Special Fund.i/ Comparing the enactment date of the Agreement (March 1969) with the establishment date of _41/ Devlet Planlama Teskilati, Ulastirma Koordinasyon Proje Merkezi Miidiirliigii, 2p. _<_:_i_t., p. l. 219 the Coordination Council (May 1970), it is concluded that the Council is not formed voluntarily, but, rather, imposed upon the administrative structure just before the deadline in order to continue receiving aid from the Fund. The Council reports to the Supreme Council of Plan- ning and is chaired by the under-secreta ry of State Plan- ning Organization. Its membership consists of unde r- secretaries of Finance, Transportation, Construction, and Interior; Directors of Planning in the Ministries of Transportation and Construction; and four Divisional Directors of the State Planning Organization. From the Supreme Council of Planning it is understood that the 5/ Transpo rt Coordination Council is purely advisory. An advisory council is far from meeting the challenges of transport coordination and, at best, is a short-run remedy. The only agency legally empowered to coordinate 2/ Yuksek Planlama Kurulu Rapo ru (Report of the Supreme Council of Planning) dated December 29, 1970, No. 100, on Transport Coordination Project, p. 1. 220 transport infrastructures and services is the Ministry of Transport. Historically, this understaffed Ministry failed to bring about the necessary coordination because of budgetary constraints. Unless measures are not taken to make the Ministry more viable, any advisory unit created elsewhere in the administrative structure will fail to provide a long-term remedy. Ever since the 1963 Annual Program, the planners recognized that the Ministry of Transport is the only agency legally em- powered to coordinate the activities in the transport sector and that it lacks qualified staff and organization to meet the challenge. When the problem was diagnosed as such, it is inconceivable that the prognosis prescribed by establishing an advisory council will solve the problem. The long-te rm solution should have started with a study of existing organizational problems and adminis- trative needs of the Ministry. On the basis of this study an organizational redevelopment plan should have been out- lined. The outcome would have been a Ministry of Trans- port capable of: 221 (a) Reviewing the legal, administrative, and economic environments surrounding the con- structional, ope rational, and user agencies in order to: (i) Identify areas of conflict and duplication, and loop holes. (ii) Prepare transport reform bills and intro- duce them to the Parliament. (iii) Design means for an orderly introduction of adopted laws to the system. (iv) Study the impact of new laws on the per- formance and efficiency of the system which will serve as a feedback for further legal measures. (b) Surveying the long-run transport needs of the nation by: (i) Designing an information gathering system capable of gene rating accurate and timely economic and cost data. (ii) Identifying transport system interactions 20 222 with other systems to analyze transport costs and value added. (iii) Analyzing trade -offs within the transport system and identifying major problems. (iv) Preparing deveIOpment alternatives for review and adoption by the Council of Ministers. (v) Implementing the development alternative selected through coordination with agencies involved. (vi) Evaluating results and preparing further plans of action. Economic Problems. Due to lack of coordination among agencies responsible for the planning and construc- tion of transport infrastructure and use of the transport system, the following economic problems are identified: (a) Transport infrastructures are built parallel to existing infrastructures. Cases where highways are built parallel to railways or to waterways a re abundant. 223 (b) Idle capacity in all modes is reaching serious proportions. Infrastructural utilization never exceeds 20 percent and the utilization of vehicles is around 50 percentél (c) There is no control over rates in motor, and water transport, and data to allow cost-based pricing in rail transport is non-existent. (d) Users of highways do not participate adequately in the costs of infrastructural investments and maintenance and repairs, whereas the State Railroads fully participate in the total costs of rail infrastructure. This imbalance results in: (i) a high average cost for rail, (ii) an increasing use of motor transport even for hauls as long as 700-900 miles, (iii) a highly competitive system where price cutting is recognized as the only means to gene rate a higher vehicle utilization rate. _6_/ Devlet Planlama Teskilati (State Planning Organization), Karayolu Tasimasi (Highway Transport), Ankara: 1964, p. 12. (e) 224 However, past experience has shown that a higher vehicle utilization does not bring greater revenues because of the price inelas- ticity of transport demand. The rail rates and port charges are subject to approval by the Council of Ministers which is primarily politically oriented, rather than economic. Due to political considerations, some routes and services are charged at a level less than ave rage costs. This may be proper when it is considered that present rail and port utilizations are not high enough to enable a level of ope ration where average costs are minimum. Therefore, pricing at lower than ave rage costs may still be acceptable if prices are equal to or greater than marginal costs. However, due to parallel high- ways, a price reduction in rail is met with cut- throat competition. For instance, a 50 percent reduction in rail rates for goods in transit to Iran was immediately matched by the trucking 225 establishments. Due to better transit time and more complete service, the motor mode is now gene rally used for this service for a dis- tance of 800 miles at one-half the regular rate which in itself was established by cut-throat competition. Since most trucking is performed by owner-operators, trucks are able to compete with the railroad at rates sufficient to cover variable costs only. In short, a political motive by the Council of Ministers resulted in an unbear- able waste of existing transport capacity. (1') The re are no restrictions on the entry to motor transport. No licenses, fees, or certifications are required. Individual ownership and operation of vehicles is most common. Lack of technical and managerial know-how among many owner- ope rators compounds the economic problems identified. The ultimate responsibility for remedying these problems rests with the Ministry of Transport. To 226 accomplish reform, the Ministry of Transport must immediately undertake a study for the purposes of: (a) (b) (C) Gathering, analyzing, and interpreting cost data on each mode. Determining equitable levels of participation in infrastructural construction and maintenance costs by users in each mode. Detailing a long-run plan of action to: (i) Abandon the practice of building parallel infrastructures. (ii) Isolate the most economic and effective mode along a specific route for each com- modity group. (iii) Establish minimum tariffs for each mode so that an equitable use among modes can be realized and an Optimum commodity service by each mode can be achieved. (iv) Increase infrastructural and vehicle utiliza- tions. (v) Transfer the authority of rate making for 227 rail transport and port services from the Council of Ministers to their managements. (vi) Introduce a system of control in road transport through licensing and certification. (vii) Assure an input of greater technical knowledge and manage rial expertise to the users by offering regular trade conferences, seminars, publications, and encouraging the establish- ment of a greater number of company- operated trucking firms as opposed to owner- Ope rated units. 3. International Problems. In this section the problems identified with respect to motor, water and air transport will be dealt with. (A) Motor Transport. The share of Turkish trucking firms in the transport of goods in foreign trade is extremely low. Of the 928,000 tons of Turkish exports by motor mode in 1968, only 2,000 tons were transported by Turkish trucking firms. In the same year 1, 545,000 tons we re imported into Turkey by motor, of which only 228 3, 000 tons were carried by Turkish firms“?! The moto rborne traffic is mainly with European countries with minor movements across the Eastern and South- eastern borders. Although there are no accurate figures available for the deficit of transport services due to the motor mode, one can make a rough estimate as follows: Total Motor Mode Movement (Tons). . . . . . . . . . 2, 473, 000 Export 928, 000 Import 1,545, 000 Total Freight Bill (Paid in foreign currency) 2, 473, 000 tons @ $50/ton (Average). . . . . .$123, 650, 000 Less: Total Direct Expenses in Turkey”). . . . 49,460,000 (a) Operating Expenses: 2,473,000 tons x 500 miles average dis- tance passed in Turkeyzl,236. 5 Mil. ton-miles 1,236.5 Mil. ton-miles @ $.03(Z) ton-mile ................$37,095,ooo (b) Administrative Expenses and Commissions: 10% of Total Freight Bill. . .12, 365,000 Deficit of Motor Transport Services. . . . . . . . . $ 74,190, 000 (1) This item attempts to estimate the money left in Turkey by foreign operators. (2) This is an estimate of direct operating costs related to operating a foreign vehicle within Turkey. 1/ Gezen, Asil, Turkish Foreign Trade and National Transport Policy, Unpublished paper, E. Lansing, Michigan: May 1969, p. 16. 229 International Monetary Funi estimates a freight deficit of $52 million for 1966.§/ If Turkish trucking firms could be encouraged to equally participate in the foreign trade movement, $37 million of this freight defi- cit would have been avoided. In exploring the reasons why Turkish trucking firms are not encouraged to participate in the export and import tonnage, some factors which fall into two sets of broad restrictions will be covered: price restrictions and operational-legal restrictions. a. Price Restrictions. It is obvious that one of the main reasons that prevent Turkish trucking firms from entering the foreign trade market is their inability to meet the competitive freight rates. Experience shows that this inability stems from the following two facts: (i) Transit charges. Table 8.2 shows the transit charges assessed to Turkish trucks by vari- ous European countries. As will be seen, a _8_/ International Monetary Fund, Balance of Payments Yearbook, Vol. 20, March 1969. 230 Table 8. 2: Transit Charges Collected by Some European Countries from Turkish Trucks 0°“er 1.3539221??? “236133311531. Bulgaria 37 49 Yugoslavia 104 145 Austria 16 20 Western Germany 20 23 Greece 30 4O Source: International Road Transport Union, Handbook of International Road Transwrt, 1966, 5th Ed. , Geneva: 1966. 231 lO-ton Turkish truck destined for Western Germany will pay a total of $177 to the Bulgarian, Yugoslavian, Austrian, and Western German authorities at respective borders. If the truck is loaded to capacity (which is very seldom the case), the transit charge burden per ton for one trip is $17. 70. On the other hand, no transit charge is col- lected from any foreign truck in Turkey. We are not in a position to judge the question- able political advantages that could be gained by this generosity of the government, but the economic implication of this is exploitation, in its purest sense, of the limited resources of the nation. Not only is it illogical insofar as participation of foreign Operators in the con- struction and upkeep costs of Turkish highways due to wear caused by them, but also, it non- sensically eliminates equal grounds of com- petition between Turkish and foreign trucks. 232 The Ministry of Transport must immediately initiate a survey of existing practices and prepare a transit charge system on the basis of reciprocity for the review and approval of the Council of Ministers. High Investment Base. Turkish export and import tonnage by motor mode is mainly shared by Greek, Yugoslavian, Bulgarian, and Western German trucks. Western Ger- many is a producer of trucks and trailers. Yugoslavia and Bulgaria do not produce trucks but purchase them from other com- munist countries, such as Czechoslovakia and Russia, in exchange for exports or with long-term credit and without any customs duty. Greece imports trucks from the free world with a 60 percent customs duty on CIF price. Trucking firms in Greece, however, are granted long-term government credit with very favorable terms. In Turkey, on 233 the other hand, a small assembly plant manufactures 2,000 small trucks every year which costs as much as an imported Western counterpart. This is about 10 percent of the annual need. Most of Turkey's trucks are imported from Western EurOpe and the U.S.A. with a customs duty of 100 percent on CIF price. In addition, there is no long-term credit or any other government program to encourage financing. The picture should be clear by now: A $10,000 truck in Western Germany costs about the same to the government subsidized trucking firms in Yugoslavia and Bulgaria, about $16, 000 to a trucker in Greece who can get very favor- able long-term credit to finance the invest- ment, and about $20, 000 cash to a Turkish trucking firm. Nothing more need be said on this matter, except to remind that one of the important cost elements in trucking, or, 234 for that matter, in any business, is depre- ciation. In c00pe ration with the Ministry of Finance, the Ministry of Transport must determine means of reducing the investment costs on vehicles and/or providing long-te rm financing po 3 s ibilitie s . b. Ope rational- Legal Re strictions (i) TIR Convention. On January 15, 1959, the following 21 European nations agreed upon a customs convention on the international transport of goods under cover of TIR carnets: Austria, Belgium, Bulgaria, Switzerland, Federal Germany, Czechoslovakia, Denmark, Spain, France, Great Britain, Greece, Hungary, Italy, Luxemburg, Norway, the Netherlands, Poland, Romania, Sweden, Finland, and Yugoslavia. Article 2 of this Convention reads: This convention shall apply to the trans- port of goods without intermediate reload- ing across one or more frontiers between Sign; 235 a Customs office of departure or one Contracting Party and a Customs office of destination of another Contracting Party, in road vehicles or in containers carried on such vehicles, notwithstanding that such vehicles are carried on another means of transport for part of the jour- ney between the offices of departure and de stinatio n. .2] Chapter III of the Convention provides pro- visions concerning transport in sealed road vehicles or sealed containers in which Article 4 states: . . . goods carried in sealed road vehicles or in sealed containers on road vehicles a) shall not be subjected to the payment or deposit of import or export duties and taxes at Customs offices en route; and b) shall not, as a general rule, be subjected to Customs examination at such offices.19/ Turkey became a full member of the TIR Convention in August 1967. Since 1968, the Turkish trucking firms gradually started to participate in the expo rt and import tonnage 9/ International Road Transport Union, Handbook of Inter- national Road Transport: 1966, 5th Ed. , Geneva: 1966, p. 262. 19/ n2. 236 distribution. However, the recent increasing trend of this participation leaves much to be desired. For example, in 1971 only 25,000 tons of primary external flows and 2, 300 tons of secondary external flows (between Iran and Europe) were hauled by Turkish trucking firms. The total number of individual trips amounted to 2,556. In the same year, 32 Turkish trucking firms we re authorized to transport goods under the TIR Carnet with a total fleet of 214 semi—trailers and 64 trucks designated for this purpose. The hauling capacity of this fleet was 3, 154 tons for semi-trailers and 640 tons for trucks..l_l_/ These figures indi- cate that: 1. The average number of vehicles per trucking firm is less than 9 units. l__l_/ Devlet Planlama Teskilati (State Planning Organization), Karayolu Ulastirmasi Ozel Ihtisas Komisyonu Rapo ru (Report of the Special Committee on Road Transport), Ankara: December 1971, pp. 138 ff. . 1: 237 2. The average tonnage hauled per trucking firm is 853 tons. 3. The average load per trip is little over 10 tons, compared to the average loading capacity of 15 tons for semi-trailers and 10 tons for trucks. 4. The ave rage yearly tonnage carried per vehicle is less than 100 tons. The first two items above indicate an urgent need for consolidating the manage rial efforts of numerous trucking firms in order to elimi- nate wasteful duplications and achieve a greater economy of scale. The Ministry of Transport is urged to study the trend and the possibilities of establishing an association of trucking firms to handle international trans- port of goods by road. The third item shows a good load factor, but when compared with the fourth item, it indicates an extremely low utilization ratio per vehicle per year. Even 238 the third item indicates room for improve- ment when the load factor per trip is con- sidered separately for the Turkish imports. In 1969 a total of 1,411 import trips carried 8,490 tons, or an average of 6 tons per trip..i£/ Again, this ratio indicates an urgent need to consolidate the capacity of trucking firms under one administration. (ii) £93ng Bond Transport. Any foreign truck that applies for customs bond transportation privilege between the Turkish border and any point in Turkey can be granted this privilege automatically. The only require- ment is to present a bank guarantee letter of $12,000 to the border customs officehié/ No other taxes, fees, licenses, or permits are required other than this deposit. For a Turkish trucking firm to obtain the same 1.2] Ibid., p. 141. _1_3/ International Road Transport Union, 9p. cit., p. 224. (iii) 239 privilege the requirement is a bank guarantee letter to the Ministry of Customs in the amount of $200, 000 in addition to approximately one year of red tape. This problem can be eliminated by reducing the requirements asked of Turkish trucking firms to an equitable level. The Ministry of Transport in cooperation with the Ministry of Customs and Monopoly must take the necessary steps to reduce the guarantee letter requirements from Turkish truckers to a more equitable level and reduce red tape. Foreign Exchage Accountability. According to the foreign exchange regulations enforced in Turkey, any person who goes abroad and for that purpose purchases foreign currency from the Turkish Central Bank must furnish detailed evidence of expenses abroad and return the unspent currency to the bank within 15 days after his arrival in Turkey. (iV) 240 A lucky person will be able to conclude the formalities and return the unspent amount in two days. The relevance of this red tape is that any formality related with foreign exchange purchases and returns cannot be followed by an authorized representative who has an appropriate power of attorney. In other words, the Turkish driver must personally purchase the currency and return it upon his arrival; i. e. , he will spend as much time in following endless formalities as performing his main function of driving. The foreign exchange regulations must be changed to allow purchase or return of foreign currencies by persons having a power of attorney. The Ministries of Transport and Finance must work together in this direction. Inte rnational Agreements. Turkey is not a member of the following multilateral agree- ments or conventions in force which are 241 closely related to international road transpo rt:_1..‘_1./ 0 Convention on the Contract for the International Carriage of Goods by Road (CMR), signed at Geneva on May 19, 1956. Member countries are Austria, Belgium, Denmark, Federal Germany, France, Italy, Luxemburg, Netherlands, Poland, and Yugoslavia. 0 Convention on the Taxation of Road Vehicles Engaged in International Goods Transport, signed at Geneva on Decem- ber 15, 1956, by the following participa- ting countries: Austria, Czechoslovakia, Ireland, Luxemburg, Norway, Sweden, and Yugoslavia. 0 Protocol on Road Signs and Signals signed at Geneva on September 19, 1949. The contracting parties are Austria, Belgium, 14] Ibid., p. 309. 242 Bulgaria, Czechoslovakia, Demnark, Finland, France, Greece, Hungary, Italy, Luxemburg, Netherlands, Poland, Portugal, Romania, Spain, Sweden, and Yugoslavia. A European Agreement supplementing the 1949 Protocol on Road Signs and Signals was signed at Geneva on September 16, 1950, by Austria, Belgium, France, Greece, Hungary, Italy, Luxemburg, Netherlands, Poland, Spain, and Yugoslavia. Customs Convention on the Temporary Importation of Comme rcial Road Vehicles, signed at Geneva on May 18, 1956, by Austria, Belgium, Bulgaria, Denmark, Federal Germany, France, Greece, Hungary, Ireland, Italy, Luxemburg, Netherlands, Poland, Romania, Spain, Sweden, Switzerland, United Kingdom, and Yugoslavia. 243 0 Customs Convention on Containers, signed at Geneva on May 18, 1956. The participating nations are Austria, Belgium, Bulgaria, Czechoslovakia, Denmark, Federal Germany, Finland, France, Greece, Hungary, Italy, Luxem- burg, Norway, Netherlands, Poland, Portugal, Spain, Sweden, Switzerland, ' United Kingdom, and Yugoslavia. o EurOpean Convention on Customs Treat- ment of Pallets Used in International Transport, signed at Geneva on Decem- ber 9, 1960, by Austria, Belgium, Bul- garia, Czechoslovakia, Denmark, Federal Germany, France, Hungary, Luxemburg, Norway, Netherlands, Romania, Sweden, Switzerland, United Kingdom, and Yugoslavia. It is strongly recommended that the above documents be studied by the Ministries of I.. ..nu ' 731' 244 Transport and Foreign Affairs, and that the steps necessary for Turkish participa- tion in all (with appropriate exceptions on applicability) be initiated. (B) Water Transmnfi. Table 8. 3 shows the general cargo transport of Turkish foreign trade carried by Turkish flag vessels from 1950 to 1960. Import and expo rt percentages broken by Turkish and foreign flag are given in Table 8.4. On the ave rage, one-third of Turkish waterborne foreign trade is carried by Turkish flag. The capacity of Turkish fleet ope rating in inter- national trade is estimated around 40. 4 billion ton- kilometers in 1960. Only one-third of this capacity was utilized in 1960, which indicates room for improve- ment in the Turkish flag share. The ave rage distance traveled was 6, 500 kilomete rs..1_.5_/ An increase of Turkish flag share to 50 percent means an approximate reduction of $17. 0 million in the balance of payments deficit computed as follows: _1_5_/ Devlet Planlama Teskilati (State Planning Organization), Deniz Ulastirmasi (Water Transport), Ankara: 1964, p. 18. 245 Table 8. 3: Turkish Foreign Trade Carried 11 Turkish Flag (General Cargo) Year Metric3Tons Ton-Kilcgmeters (10 ) (10 ) 1950 1,064 6,915 1951 1,338 8,701 1952 2,006 13,560 1953 1,280 8,321 1954 1,490 9,687 1955 2,122 13,792 1956 1.696 11,024 1957 2,029 13,189 1958 1,398 9,086 1959 1,641 10,667 1960 2,012 13,081 Source: Devlet Planlama Teskilati (State Planning Organization) Deniz Ulastirmasi (Water Transport), Ankara: 1964, p. 13. Pl I 'I i‘ » '4 i-s .' ‘ Irv-v 246 Table 8. 4: Turkish and Foreign Flag Shares(°7flf Turkish Imports and Exports by Water (General Cargo) Year Imports Exports Total Turkish Foreign Turkish Foreign Turkish Foreign 1953 33 67 13 87 23 77 1954 41 59 20 80 31 69 1955 39 61 40 60 36 64 1956 36 64 35 65 35 65 1957 37 63 43 57 39 61 1958 36 64 27 73 32 68 1959 42 58 22 78 30 70 _1_960 38 62 34 64 l 36 64 Source: Devlet Planlama Teskilati (State Planning Organization), Deniz Ulastirmasi (3V_ater Transport), Ankara: 1964, p. 14. 247 (. 50-. 35)(. 36.1x109 ton-kilometers) = 5. 42x109 ton-kilomete rs 5.4Zx109 + 6.500 kilometers 830,000 tons Revenue per ton: 6,500 kilometers @ $. 007 per kilometer = $45. 50 per ton Total Revenue: 830,000 tons x $45. 50 per ton = $37. 8 million Less: Operating costs abroad (830,000 tons x $25 per ton) = $20. 8 million Net Benefit: = $17. 0 million In order to increase Turkish flag participation, the Ministry of Transport must undertake the necessary steps with: (i) The Ministries of Foreign Affairs and External Trade to include a provision in bilateral trade agreements to the effect that an equitable share of Turkish flag tonnage will be provided. (ii) The Ministries of Foreign Affairs and Finance to include a similar provision in aid agreements. (iii) The Ministry of Foreign Affairs to isolate Con- fe rence practices discriminating against the 248 Turkish flag and take the necessary steps to remove such practices. (iv) The Ministry of External Trade to introduce increased practice of CIF selling and FOB purchasing to the Turkish expo rte rs and im- porters, respectively. Turkish ports are presently serviced by ten steam- ship conferences..i_§_/ Some of these Conferences have already adopted a 50 percent Turkish flag share practice. One example is the Continent/Turkey/Continent Con- ference and Pool Agreement enacted on August 26, 1969, which operates between the Netherlands, Federal Germany, Belgium, on one hand, and Turkey, on the others-Ill As far as international conference agreements are concerned, it is concluded that Turkey adequately partici- pates and is properly represented in 15 such agreements. _16/ Devlet Planlama Teskilati (State Planning Organization), Tiirkiye 'de Deniz Ulastirmasina Uygulanan Mevzuat (The Legal Structure of Turkish Watei Transport), Ankara: July 1971, p. 15. 1]] 119351., p. 18. 1 L ! 249 However, an average lag of 17 years occurred between the initial enactment of these agreements and Turkey's entry as a party, with the range being from 2 to 39 years. Every effort must be made to reduce this lag in future agreements. (C) Air Transport. Air transport to/from inter- national markets is negligible at the present. However, with the introduction of jumbo jets and otherhighly efficient vehicles and improved terminal ope rations, the reduced ton-mile costs coupled with transit time reductions will make the air mode increasingly attractive to the shippers. Turkey is a party to the Chicago Agree- ment enacted on December 7, 1944, and the Turkish Airlines is a member of International Air Transport Association. However, it is strongly recommended that the necessary measures be taken to make Turkey also a party to the following :fl/ 18/ Devlet Planlama Teskilati (State Planning Organization), Tiirkiye 'de Sivil Havacilik Mevzuati (The Legal Struc- ture of Civilian Air Transport in Turkey), Ankara: March 1971, p. 12. 250 (i) Tokyo Agreement enacted on September 14, 1963 (ii) Geneva Convention enacted on June 19, 1948 (iii) Warsaw Convention enacted on October 12, 1929 (iv) The Hague Protocol enacted on September 28, 1955. 8. 2. 2 Other Modal Problems 1. Motor Transpo r_t. In addition to the problems of the motor mode discussed in Section 8. 2.1, other important problems will be covered in this section. One problem is a continuous reduction in truck utilization since 1954. Idle capacity encourages a destructive com- petition with other modes as well as within the mode. The rates charged by the railroad reflect a full cost pricing which includes depreciation of right of way, repair and maintenance, expenses of right of way, and a transport tax, none of which are cost elements in the motor mode. Table 8. 5 gives a breakdown of user parti- cipation in highway expenses. As is clearly shown in Table 8. 5, for all practical purposes the right of way in the motor mode is free to the users. A transit charge 251 Table 8. 5: User Participation to Higliway Expenses, 1950-1960 Year Total User Charges (Mil. TL) Total Expendi- tures (Mil. TL) Ratio of User Charges to Total Expenditures 1950 1951 1952 1953 1954 1955 1956 1957 1958 1959 1960 36.9 44.4 48.2 52.5 58.7 57.2 56.5 45.7 46.3 88. 1 74. 9 55.7 84.1 133.7 148.1 139.8 240. 8 282.0 376.2 438.0 627.2 568.5 66% 53 36 35 42 24 20 12 10 14 13 Source: Devlet Planlama Teskilati (State Planning Organiza- tion), Tasima Politikasi (Transport Poligy). Ankara: 1963, p. 18. 252 system was established in 1967 which brought in $750, 000 in revenues. For some strange reason all transit charges were abolished in 1968. It is strongly recommended that the Ministry of Transport undertake a study in order to: (i) Assess user charges on the motor mode to achieve equitable conditions of competition with the rail mode, and (ii) Re-establish a transit charge system on the basis of total mileage traversed within Turkey, so that any negotiation on re ciprocity will enable the planners to compare benefits with costs on the basis of distances traversed in each country. Another problem in the motor mode is the age of vehicles. Table 8. 6 puts this problem in proper per- spective. Although the percentage of newer trucks has been increasing, it should also be noted that the percentage of trucks older than 10 years has also been steadily rising. Also, approximately two-thirds of trucks are five or more years old. Based on State Planning Organization's estimate of an ave rage 75, 000 kilometers per vehicle 253 .«L .Q :vood "musings .Snommndufi ~33): mmmgmmh gormdudm .AnoflmumdmmnO wnmfinmfim oufimv flflmxmofi sadism uo~>oQ Eonm poummpaw “oonoom .033 ofi 35 poumnomu can“ «on 33605 Epoch; mo 03:6on museum 0mm fimspwzpqm mo 5.9m 05 8:3 comme uon on 3308* 2: 68:3 mm 3643 mm 86.: S 36.: SS S 34.3 3 8.2: we STE mu 23.2 SS 2: 26.9. om Nomi om amiss om :45 $2 2: Sham 3. 34.: mm 5.6.3 2 gas. m2: 2: oS.mm 3 ST: em 23.: E ONNJ £2 o\e Hvflgz oNe HOQEDZ one Hvfigfiz o5 hvngz .198. So 266» m 5% 663 Bo 266» 2...... 636» S 55 .830 36» mxosnB 6?. .3 SEE. c6 6633365 5 .w 633. 254 per year,l.2./ a five-year-old vehicle has a burden of 375,000 kilometers on it. It is staggering to note that 27 percent of trucks in 1961 had at least 750,000 kilo- meters on them. In 1961, a total of 1,581 trucks were older than 1941 and still operating. This fleet had at least 1. 5 million kilometers on each vehicle. The con- tinued operation of such an old fleet is beyond economic reasoning. When the fact that the Turkish trucking fleet is made up of various national products and numerous makes and models, the problems of keeping a ready stock of im- ported parts, and providing appropriate service facilities are beyond the reach of any imagination. The problem of old vehicles is due to many factors, some of which are the following: (a) Until recently all motor vehicles were imported into Turkey. Domestic assemblies dependent on imports of engines started in the mid-1960's. 1_9/ De vlet Planlama Teskilati (State Planning Organization), 1963-1968 Doneminde Karayolla rini Kullananlardan Saglanan Kamu Gelirle ri (The Receipt_s Gene rated from Highway Users in 1963-1968), Ankara: March 1971, p. 29. Erlriflwugn (1| (b) (C) (d) 255 Import quotas for trucks were never set at a level so as to encourage replacement of old units by newer ones. When domestic assemblies started, protectionist measures were introduced and import quotas were established. Due to the low capacity of domestic plants, a greater scarcity of vehicles became an inescapable consequence. As explained earlier, the first cost of transport vehicles in Turkey is abnormally high due to high customs duties and other taxes imposed on imported parts and vehicles. As shown in Table 8.7, the cost of customs dues and taxes on materials and components related to motor vehicles has increased substantially. On the other hand, very few trucking firms exist that are financially able to receive borrowed capital. It follows that a great majority of owne r-operato rs cannot borrow to buy newer models. On the other hand, due to destructive competition .03an do JR; #9362 3.1934 .Awoofinmeoa 5 Fauna. hmcxfimm So: poumuonomv 256 mufiooom 63.5 363360 58mm GmanMmm :mpumficmnmSDM fiSumSofimumM 36580an wooaumoofi .Asoflmudfimwuo mzwnsmfinm ouwumv flmfixmofi mgmanmfinm uo~>oQ “condom. . 000 A Haw UwuwflflnfiOHQ “Own—duh OQEHVW mm mm mm 1.623.. 2. ma 2.. S 3 an 30.3: mmfimnm 3 am cm 3 mm w... 83: .SO 3620 S S am E E E A: .moéa 66332 636.36% E as 8 3 3 3 ST: .3.sz 6630 2. E E. E E E $98.3; Magnum E $ 3 3 3 3 £6492. .8 .2: 33m seem 2: 2: mm mm mo ma 80.3.5 3:63 seem Aom-o~-0z.p~.oo“-.ez.oe we 2. mm mm mm mm “3.3 $3.me Bra 28385 Ae-mo.~o.pmv as am S S 1.. S 8&5 3&3 633.8 Lom-o~.~o.ewv om me em on 6... 6... ofimnm an? 6:628 naming 6:6 3.2.2: «.5 eat. «as. «as. «as. .3... 3638 asxona was $632. $2 $2 663666M6$ $2 $2 $682 0.5m 6.8 86: may own: no vacuum pouoofiom a no x6365 Eu no 0a 688B .850 use 66:0 mEoumoO “h .w 3an 257 and cut-throat pricing, profit margins are so low that no owner-operator can afford to pur- chase a new vehicle from retained earnings. Also ope rating an older and economically in- feasible vehicle drains most of ope rating profits for repairs and maintenance which further reduces retained earnings and creates a dilemma. The present system offers a good example of a vicious circle: high repair and maintenance costs reduce retained earnings which in turn increase the inability to purchase new vehicles and achieve lower ope rating costs. This vicious circle can be broken by taking measures to eliminate cut-throat competition, and any one or a combination of the following measures: (a) Reducing the initial costs of vehicles through customs tariff reduction and/or more efficient domestic production. 258 (b) Increasing the opportunities for owner- operators to obtain borrowed capital at low cost. The Ministry of Transport must immediately outline a policy to mitigate this problem and present it to the Council of Ministers for final review and approval. 2. Water Transport. A review of the study made by the State Planning Organizationég/ revealed that as of July 1971 a total of 120 legal documents make up the legal structure of domestic water transport. A synopsis of this structure is provided in Table 8. 8. If 15 inter- national agreements, 10 conferences and 6 international organizations in which Turkey has full membership are added to Table 8. 8, the problems of coordination, frac- tional coverage, and confusion will be better understood. The problem will be further compounded when 14 other legal documents and 8 international ship classification institutes concerned with shipbuilding are added to the already lengthy list. EQ/ Devlet Planlama Teskilati (State Planning Organization), Tiirkiye 'de Deniz Ulasti rmasina Uygulanan Mevzuat, 2p. cit. 259 Table 8.8: Number of Legal Documents Connected with Domestic Water Transport, as of July 1971 _Type of Document Number Directly Related Laws 25 Indirectly Related Laws 33 Regulations 24 Council of Ministers' Orders 9 Directives 14 Decrees 15 TOTAL 120 Source: Devlet Planlama Teskilati (State Planning Organization), Tiirkiye 'de Deniz_N§kliyatinda Uygulanan Mevzua_t (The Legal Structure of Turkish Water Transport), Ankara: July 1971, pp. 3-12. 260 Some of the legal documents are inherited from the Ottoman Empire and many old documents have been amended so many times that only a few articles remain in force. The Ministry of Transport should immediately undertake a review of legal documents in water trans- port and shipbuilding so that a comprehensive law is created in accord with a coordinated water transport policy. One of the important laws in water transport is the Law Establishing the Ministry of Transport. This law creates a very powerful and viable Directorate of Ports and Waterways within the Ministry. However, this Directorate has not functioned as expected due to lack of qualified personnel. Every effort must be made to staff this unit with experts qualified to bring about the desired coordination of agencies directly involved in water transport and infrastructure. About 40 percent of international transport by Turkish flag is performed by two state-owned enterprises. The remaining portion is done by a number of privately owned 261 shipowners. The state-owned enterprises are also empowered to deal with banking, insurance, freight forwarding, domestic transport of mail and passengers, port administration, warehousing, ferry-boat services, hotel and restaruant management, etc. The activities are so diverse that managerial attention is thinly divided among various functions with resultant chronic losses and subsidies. The Ministry of Transport must imme- diately formulate a plan to free state -owned shipping enterprises from burdens unrelated to maritime trans- port and reorganize them into a more efficient and effec- tive ope ration. The administration of ports and quays is a complete chaos. Some ports are operated by State Railways, some by the State Maritime Lines, a few are operated by local governments, and still some by the State Coal Authority. All ports must be administered by one centralized authority with autonomous directo rates at each port. There are no free trade zones in Turkey. In the 1963 Annual Programme, the State Planning Organization 262 recognized the need for such zones for the development of Turkish transit trade and to attract small-scale indus- tries to a concentrated area. However, nothing is done so far toward the establishment of free trade zones. The ports of Iskende run and Trabzon have great potential for becoming the entry/exit points for waterborne secondary external flows in transit through Turkey. The Ministry of Transport must study the potential of these ports with respect to transit trade and perform cost/benefit analyses to determine the feasibility of free trade zones in these ports. 3. Shipbuildiig. The historical development of the merchant fleet made up of publicly and privately operated units used in both intercoastal and foreign trade is given in Table 8. 9. The table reveals that the trend has been steady with a phenomenal growth in tankers. Also, during the twenty-year period, the ave rage capacity doubled from 160 to 320 gross tons. However, the age distribution of the merchant fleet leaves much to be desired. Table 8.10 gives the distribution of the 2,722 263 .6 .6 .2662 .2826... £26665; $666: 66.682.226.635 E2260 .AaoflmsmcmmnO wnwgmam 3.39 363x608 mgmfinmfinm 60300 “condom .633 636. 226 @0952: 6.2.6 66206 mmoum 0.29.2.6 no 2 mo 63:6 3220 5qu 2.666 66666 6.66 26 6.626 662 -6.666 266.6 6666 6.666 666.6 6.66 66 6.626 662 6.666 666.6 6662 6.666 626.6 6.66 66 6.666 662 6.226 666.6 6662 2.666 666.6 6.66 66 6.666 662 6.666 666.6 6662 6.666 666.6 6.66 66 6.666 662 6.666 666.6 6662 6.666 266.6 6.66 62 6.266 662 6.666 666.6 6662 6.666 266.6 6.66 62 6.662 662 6.666 666.6 6662 6.666 666.6 6.66 62 6.662 662 2.666 666.6 6662 6.626 666.6 6.62 62 6.626 662 6.666 662.6 6662 6.666 666.6 6.62 62 6.266 662 6.666 666.6 2662 6.666 662.6 6.6 62 6.662 662 6.666 666.6 6662 6.666 666.6 6.6 6 6.262 662 6.666 266.6 6662 2.666 662.6 6.6 6 2.662 662 6.666 666.6 6662 6.666 662.6 6.6 6 6.662 622 6.666 666.2 6662 6.666 666.6 6.6 6 6.662 622 6.662 666.2 6662 6.626 666.6 6.6 6 6.662 622 6.662 626.2 6662 2.626 266.2 6.6 6 6.662 622 6.262 266.2 6662 6.666 666.2 6.6 6 6.262 622 6.262 666.2 6662 6.666 666.2 6.6 6 6.662 622 6.662 666.2 6662 6.266 666.2 6.6 6 6.662 622 6.662 666.2 2662 6.666 666.2 6.6 6 6.622 622 6.662 666.2 6662 x6666 A6662 A6666 A6666 mGOH. mmOHU hvflgdz mGOH. mmOhU HQDEDZ mHHOH. mmOHmv HQQEDZ mGOH. mmOhU HOQEDZ HGOV HmuoH 6.2322268 mmEm pompommmm mmEm o .260 362210266; .uooflh 622.6392 62 nmwxudh. mo unoEWmHo>oQ ova. "ms .w 3an ,,,,,, Table 8. 10: Distribution of Turkish Merchant Fleet bLAge, 1960 264 Age (years) Number of Gross Tons Percent of Percent of Ships Ships Gross Tonsi 51 or older 131 101,667 5 12 31-50 448 191,445 16 23 11-30 1,035 299, 171 38 36 4-10 703 173,711 26 21 3 or less 317 51,411 12 6 Unknown 88 16,751 3 2 TOTAL 2,722 834,156 100 100 Source: Devlet Planlama Teskilati (State Planning Organi- zation), Deniz Ulastirmasi (Water Transport), Ankara: 1964, pp. 9-10. ...; IIIIIIIIIII 265 ships in 1960 by age. Nearly 60 percent of ships which make up more than 70 percent of the total capacity are in service for more than ten years. Also a comparison of the percent distribution of the number of ships with the gross ton percentages leads to the surprising con- clusion that ships put to service recently are much smaller than their predecessors. The doubling of the ave rage capacity is, then, not due to the greater capacity of new ships, but it is due to discarding older ships of smaller capacity and retaining the large older ships in service. These large older ships, especially the ones older than 50 years which have an average capacity of 770 gross tons (more than double the overall average capacity of 320 gross tons in 1960) must be replaced with newer and faster ships. The production capacity of the Turkish shipbuilding industry is adequate to meet the demand for small ships. However, because of the inadequacy of domestic shipyards, it has not been possible to meet the demand for ships of over 6, 000 dwt and second-hand ships had to be imported..§_l_/ _1_/ State Planning Organization, Second Five Year Develop- ment Plan: 1968-1972, Central Bank of the Republic of Turkey, Ankara: 1969, p. 574. 266 In order to meet the replacement and new demand for ships, a comprehensive shipbuilding plan must be initiated by the Ministry of Transport in cooperation with the Ministries of Industry, Comme rce, External Economic Relations, and Finance. This plan, among other things, should outline means toward the elimination of the follow- ing bottlenecks and problems: (a) (b) The two naval shipyards, one of which is the largest and most modern shipbuilding facility in the country, are mostly idle. Every effort must be made to use these facilities for mer- chant shipbuilding when the yards are not used for naval shipbuilding purposes. The state-owned shipyards are not as productive as the privately owned yards. One possible reason for this low productivity is the lack of qualified personnel. As Table 8. 11 indicates, the lack of engineers in each shipyard is critical. Another reason is due to lack of administrative know-how in dealing with problems of labor. One recent 267 .62-6 .66 .2662 26668666 .2926... .3332: mnwpfisnmwnm smwxaoh. mo 0.230925 fimmd 026.5 6.656252 smndngD oafimwnumwpfim .6663 622.260 0? 0362.258 .Asoflmududmuo wfidflflm 3.39 326566668 mamfinmrm 22.62303 "condom. 66 6 662. 666 .66 666 .2 666 .6 666662... 66 6 666 .6. .z 666 .2 666 .2 66626662 662 6 666 .2 666 .66 666 .2 666 .6 6.662662 66 66 666.2 666.66 666.6 666 .6 622622 66 66 666 .2 666 .66 666 .66 666 .66 26262860 soonwmsflm new Garapoospoanm 333 08.672 6.232.203 6.2002:me muoxn 0.3 3.6365 .Umv ouwm 263m .360QO0 mo .02 mo .02 mo .02 .6924 5.92666me 262252.66 mpumflmgm @366 660 can poguoufim no 202222092 onm was 360.6650 2: .m 3an (C) (d) 268 example, although not directly related to the shipyards, is the pay scale of dock workers in Izmir. In the recent labor contract, the sick leave pay is three times greater than the average earnings per day. According to the port authorities, on the average, 25 percent of dock workers in Izmir are "sick"..2‘:.?:/ Any foreign flag ship is subject to the customs quotas and endless formalities for imports of parts needed when at urgent repair in a shipyard. A free trade zone status is essential for some shipyards, if foreign ships are expected to be repaired without unnecessary delay in customs fo rmalities . Frequent delays and work stoppages in shipyards are due to long customs formalities imposed upon the imports of engines and parts. g__2_/ Milletlerarasi Imar ve Kalkinma Bankasi (International Bank for Reconstruction and Development), Tiirkiye 'de Ulastirma Koordinasyon Hizmetleri, Ara Rapo ra Ait Ekler (Transport Coordination Services in Turkey, Annexes to the Interim Report), Ankara: August 1970, p. 51. 269 (e) A new regulation passed on April 26, 1971, on the importation of engines, parts, and other accessories used in the shipbuilding industry requires the final permission of the Ministry of External Trade which is another addition to the already crowded list of Minis- tries and agencies to be coordinated. (f) Another recent regulation dated February 27, 1971, on the importation of ships requires, among other things, that a ship must not be older than 3 years.?:_.3_/ in order to be granted an import permit. When 88 percent of ships in service are older than 3 years, this requirement seems arbitrary and unjustified. The Second Five Year Development Plan justifies the importation of second-hand ships ’ on the basis that ”second-hand ships are less ex- pensive compared to new ones. ”2.4., The new g__3_/ Devlet Planlama Teskilati (State Planning Organization), Tarkiye 'de Gemi Insa Endustrisine Uygulanan Mevzuat (The Legal Structure of the Turkish Shipbuilding Industry), Ankara: September 1971, p. 19. E11] State Planning Organization, 92. 5112;, p. 575. (g) 270 regulation apparently assumes a tremendous difference between the price of a brand new ship and a ship less than three years old. This assumption, however, is not supported. Measures of encouragement are not adequate in the shipbuilding industry. A credit fund ear- marked for the shipbuilding industry is recently revoked. Any shipbuilder in Turkey now has to depend on his own savings and commercial credit in his shipbuilding or purchasing plans. An expo rt tax refund of 35 percent was granted to the shipbuilding industry by a regulation which became effective on August 7, 1970. A week later the tax refund was reduced to 15 percent with no justification. Table 8.12 gives a synop- sis of encouragement measures in the shipbuilding industry in selected countries. A review of the table indicates how little is offered to the Turkish shipbuilders in terms of encouragements. 271 0&8 .QUMO 80.2w neummnd mOMuundOO .2650 no.“ .6qu .momH "3.626% .hnumnvfilmnwwfisnflnm 5 2603.635 66-66 .66 .2662 6666:3666 .2923. .23 wafinfionmfim AmCEOH. mo 923062.25 HOMOA O23: «monk/Oz confidwhb mammnwnumwwnmm mmnw 62.2600 on. 3 50365226960 mfinnmdnfi Oumumv 336x608 sadism Hogwm E0: no>muov dump nmwxudfi 2092de OZ OZ OZ mom. OZ OZ OZ OZ OZ Noxush. OZ no» mo? mow OZ mm? mm? 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The State Railways Adminis- tration is continuously incurring Ope rational deficits as a result of economic and legal drawbacks imposed in the system, the lack of an appropriate administrative struc- ture, and the trend toward highway transport. The present full cost pricing of railroad services puts the State Rail- ways Out of the highly competitive market. As was shown in Table 8. 5, the participation Of highway users in the construction, repair, and maintenance costs is unjusti- fiably low; whereas, the State Railways are also respon- sible for constructing new rights Of way, including founda- tion work, bridges, tunnels, port facilities, as well as repair and maintenance Of railroads and rolling stock. In addition, the State Railways Operate 91 repair and pro- duction facilities Of varying sizes for the manufacture of rolling stock. Five ports and two quays are also operated by the State Railways. Due to an extremely high invest- ment base, fixed costs are very high; whereas, variable costs are low. To meet the competition of owner-ope rated trucking units, marginal cost railroad pricing on routes 273 with heavy volume is justified on economic grounds. Full cost pricing on routes with low volume is possible due to lack Of intermodal competition. However, due to social and political reasons, the State Railways are not allowed to practice marginal cost pricing. The Ministry Of Transport must immediately initiate a cost/benefit study to evaluate the impact of political and social con- side rations On the economic performance Of rail service. A comprehensive reorganization plan must be prepared to: (a) Integrate rail services to the national transport system and policy. (b) Isolate those activities which are related to, but beyond the scope of, rail transport. (c) Create other economic units outside the State Railways Administration to deal with these isolated activities. (d) Initiate measures to the end Of creating a transport system enabling equal conditions Of price and service competition among rail, water, and motor modes. 274 (e) Prevent the duplication resulting from different manufacturing units producing the same variety Of rolling stock, and introduce specialization to manufacturing units. (f) Ease import formalities Of manufactured and semi-manufactured equipment and parts, the unavailability of which created production stoppages in the past. (g) Replace Old rolling stock with newer, larger, and more efficient units (As of the end Of 1972, it is estimated that 3,796 cars, which constitute 16. 8 percent of the total capacity and 23.7 percent Of the total num- ber Of railcars will be in service for more than 50 years.—2—§/ In the same year, 111 locomotives out Of a total of 858 will be Older than 50 years.) £5] State Planning Organization, 23° cit., p. 565. 275 8. 3 Problems Related to Potential Trade Routes 8. 3. l Infrastructural Problems From the list Of trade routes identified in Section 6. 3.2 OfChapter 6, it can be Observed that three ports are identified as potential transit and interface points. Two are located in the Black Sea: Trabzon offe rs imme- diate potential for motor connection; Samsun's potential is both immediate and future for rail. The third port, Iskende run, is located in the Mediterranean Sea and offe rs both immediate and future potential. The maximum handling capacities Of these ports based on three shifts are estimated as follows:i?‘_€l/ Iskenderun: 5. 51 million tons per year Samsun: 2. 49 million tons per year Trabzon: l. 37 million tons per year The capacities of these ports are not adequate to meet the demand Of transit trade which is expected to be at least 17.7 million tons per year. Data on the warehousing £6] Devlet Planlama Teskilati (State Planning Organization), Deniz Ulastirmasi (Water Transport), Ankara: 1964, p. 55. 276 spaces, loading and unloading equipment, berths, and other specifications on these ports are not available. The Ministry Of Transport must initiate a survey of existing equipment and facilities at these ports in order to determine the type and nature Of additional port infra- structure needed tO accommodate transit trade. Table 8. 13 evaluates the 1960 capability of existing transport infrastructure serving the hinterlands of transit trade ports. Recent data on highway capacities and flows are not available. However, it appears that the highway infrastructure serving transit ports is not adequate. The Ministry Of Transport must initiate a survey Of existing capacities and flows, identify bottle- necks, and prepare a highway improvement program to accommodate expected transit trade tonnage. From the designation of trade routes in Chapter 6, it can also be Observed that the nation's busiest port, Istanbul, was avoided as much as possible. The port complex in Istanbul has an annual capacity of more than 11 million tons which is almost fully utilized in 277 .m .6. ousmwh 593 Amy 2.62.2330 .N.6. ouswwh 80.6w Amv 668300 "condom 9v .2 176.808 66.6 226.2 662 666.2 5326:8262 mm.m moo; me com.“ namamm 66.6 666.2 662 666.2 6638.2. «Mac... 69.222626 2663 822: b 2263 322; b 266.3 326?. .3 360.6960 ovmufi 366.68 3626th .2 Om 633m Ewan 360de0 362265.264 360.6960 ommu o>< mnflmflnm wnflmflnm 660nm 36226.68 finddufi ~8Gfl< 6666626267266 $737.23 A66 266 A: 3.60% 3663.68 no 662626333 O5 gguom 3? 0.3qu WmBsfiMZ mo hfiOmmmO #26363an ”m“ .w 03.68 278 domestic and foreign shipping. The port as well as the city is seriously congested. The traffic congestion in the city is so serious that since 1965 trucks of over 5 tons are not allowed to Ope rate in the city during working hours. This causes unnecessary delays for trucks involved in transit trade between Europe and Middle Eastern countries which are obliged tO cross the Bosphorus by ferryboat. A bridge over the Bos- phorus is under construction and is expected to open before 1974. However, it will be a mistake to expect that this bridge will solve the problem Of long queues Of transit trucks: The city is already congested by local traffic and no economic justification exists for concen- trating transit trade in Istanbul. The situation in rail transit is equally serious. Every effort must be made to dive rt the transit trade away from Istanbul and partly relieve the city Of the traffic congestion. One possible alternative is diverting the trade through the Dardanelles. The presenthighway between Edirne and Canakkale is of loose surface in some parts which needs improvement. 279 The practical capacity is about 1, 000 vehicles per day with an average utilization rate of 15 percent. Presently there is no rail link through Dardanelles. A ISO-mile track can provide a link between UzunkO'prIi and Balikesir, thus providing a rail link between EurOpe and the Middle East through the Da rdanelles. The Ministry of Transport is strongly urged to initiate a feasibility study Of diverting transit trade through the Da rdanelles in light of: (a) Benefits in terms of reduced traffic congestion in Istanbul, savings in transit time, and resultant increased trade potential. (b) Costs associated with additional infrastructure, maintenance, repair, and operation. 8. 3. 2 International Problems To increase the role Of Turkey as a transit gateway between the East and West is a difficult task which requires a carefully designed and patiently implemented plan in the international arena. Shippers must be made aware Of the transit time savings, reduced costs, and better ...IAI- 624. ' I)" ..' 280 services; the top ranking Officials Of the centrally planned economies must be convinced of the potential benefits to be de rived; shipping firms and freight for- warde rs must be educated on and properly oriented to the new role Turkey volunteers to play; the psychic barriers must be overcome; the Turkish Officials and business- men who will have a direct effect on Turkey's success or failure in this new role must be properly trained; and the Turkish diplomats, especially the commercial attaches, must be encouraged to take an active part in selling the service. This new role will not come about by following a stagnant foreign policy. A dynamic attempt must be made in the international relations arena in order to gain the confidence of foreign planners and other government Officials, shippers, users, and shipping firms, and to convince them to adopt shipping plans and policies which reflect the use Of Turkey as a transit gate- way in reaching their distant customers. This new role for Turkey also requires a significant shift in emphasis for Turkish Officials and foreign policy: Turkey must 281 no more accept the role Of being a Western-oriented country at the periphery Of the West, but must see herself as an active partner in providing a bridge between East and West. The future of Turkey does not lie in how close Turkey replicates the industrialization of the West, but it lies in how well Turkey understands her potential in becoming a service center between East and West, and how well she can provide the service. The starting point to meet the challenge demanded by this new role is tO overcome the problems raised in this Chapter. A lot needs to be corrected and done within and at home before Turkey can actively involve herself in multinational deliberations and negotiations to become a transit point in East-West trade. Once the problems are corrected and issues resolved, the next problem is from where to start the multinational efforts. One possible starting point is the Regional Cooperation for Development (RCD). Under the provi- sions of a Protocol signed in 1964, Turkey, Iran, and Pakistan have established RCD to ensure close cooperation 282 in social, economic, and cultural develOpment. The military counterpart of RCD is the Central Treaty Organization (CENTO). The work Of the RCD is now beginning to bear fruits. There is every indication that economic and trade rela- tions between Turkey, Iran, and Pakistan will mark significant developments in the near future. Special committees established within the Organization are wo rk- ing on important industrial projects designed to create mass marketing possibilities for ente rprises to be set up to meet the needs of the RCD countries. As of the beginning Of 1970 mo re than 50 joint-purpose projects have been approved or agreed upon in principle. Of these, 20 will be realized in Turkey, 17 in Pakistan, and 13 in Iran.-2—7./ Following is a list Of plants to be established in Turkey: 1. Craft paper and pulp 2. Organic pigments 3. Basic and chromium paints El/ Boyacioglu, Rifki, "Regional COOpe ration for Develop- ment Joint Purpose Investment Projects, " Turkish _E_conomic Review, Vol. XI, May-June 1970, pp. 46-48. CDNO‘U‘lb-h 9. 10. ll. 12. 13. 14. 15. 16. 17. 18. 19. 20. 283 Borax and acid boric Machinery for tea processing industry Excavator (Mobile) Tungsten-Carbide Electronic equipment Diesel engines Electric bulbs Diesel locomotives Centrifugal and special filters for chemical industry Boilers, pressure containers, and steam- Ope rated heating systems Pumps and compressors High-tension insulators Tetracycline Iron and steel Shipbuilding Automobile dials and controls Oil refineries Some plants to be established in Iran are: mNO‘U‘ItAUONl—I Aluminum Naphtha dye rs Dump trucks Revolving electrical machinery Turbo-generators Petroleum drilling and refining machinery Carbon black CaprO-lactone The plants to be established in Pakistan include the following: (3‘01thth 0 O Polyeste r fibe r Polybutadiene rubbe r Polyac rinO -nit rite fibe r T ransfo rme rs Reactive paints Optical bleaching 284 7. Earth excavation equipment 8. Machinery and lathes 9. Gear boxes and differential assemblies 10. Aluminum sheets 11. Ultramarine 12. Jute 13. Roller bearings 14. Textile machinery 15. Sodium-hydroxide 16. Banknote paper As should be clear, the joint-purpose projects are quite comprehensive. The cooperation and present friendly attitude Of RCD partners toward each other are conducive to introducirg the transit gateway services Of Turkey for the trade Of these plants with Europe. Cooperation in shipping among RCD members has already started. On July 15, 1965, an RCD Shipping Services unit was established with the participation of three Turkish, three Pakistanese, and two Iranian ship- ping companies. One article in the Protocol states that it is the joint national policy of the governments of Iran, Pakistan, and Turkey to establish and reinforce modern, frequent, and regular transport services along main trade routes within the region as well as routes used for 285 regional exports and imports.§.8_/ This article gives Turkey the diplomatic encouragement to seek the cooperation Of Iran and Pakistan in using Turkey's transit potential. 28] Devlet Planlama Teskilati (State Planning Organization), Tlirkiye 'de Deniz Ulastirmasina Ujgglanan Mevzuat, 92. cit., p. 20. CHAPTER 9: A TENTATIVE PROGRAM OF IMPLEMENTATION 9. 1 Introduction The problems identified in Chapter 8 and other issues raised in prior chapters must be overcome in order to improve Turkey's transport system and service third country trade flows through Turkey. The overall responsibility to authorize further research, prepare plans of action, implement the planned measures and review the results rests with the Council of Ministers. The ministry directly involved in responding to this challenge is the Ministry of Transport. However, since the coordination of decision making agencies in transport planning and policy making is one of the major problems and since the Ministry of Transport presently lacks the qualified staff and the necessary preparation to undertake this dynamic role, it may be advisable to create a Trans- port and Trade Policy Board at the Cabinet level. As 286 287 opposed to the present advisory capacity of the existing Council of Transport Coordination, the Board must have the authority to decide on policy issues, plan transport and related commercial policy, and set in motion specific projects. One way to assure adequate coordination would be to have the Ministers of Transport, Foreign Affairs, Commerce, External Economic Relations, Finance, Customs and Monopolies, Construction, and the Under- secretary of the State Planning Organization as members of this Board. The State Planning Organization and the National Institute of Statistics would be directed to desig- nate research units to aid the Board in gathe ring and analyzing data. The present Directorate of Transport Coordination Project Center under the State Planning Organization would be reorganized as a Transport Research Center and temporarily kept under the State Planning Organization until the Ministry of Transport is made ready to assume the overall responsibility of transport planning, policy making, and coordination. In the long run, the Board's powers should gradually 288 be transferred to the Ministry of Transport. To this end a major reorganization is needed in the Ministry. A plan of reorganization of the Ministry must be one of the initial concerns of the Board. 289 9.2 A Tentative Program of Implementation On the basis of problems and remedies identified in Chapter 8, a tentative implementation program is presented in Figure 9. 1 through 9.4. It should be noted that the long-run execution level is gene rally identified as the Ministry of Transport. This emphasis is an outcome of a long-run perspective of attaining centralized planning and policy making advantages in transport services. The frequent mention of the Ministry of Transport as a responsible unit for short-run action should not be interpreted to mean that the Ministry is presently capable of undertaking the prescribed work. The Ministry needs all the help it can get from the other agencies in undertaking research work and drawing up plans Of action. The Ministry must be made an active participant in research and planning in the short run in order to develop the capability of becoming the executive implementing agency in the long run. A timetable is not provided in the program of implementation presented in the Figures. However, Decision Level: Execution Level: (Sho rt- run) Research Assistance: Problem A reas: Resensibility: Action: (Short - run) Execution Level: (Long- run) Action Level: (Long- run) Figure 9.1: A Tentative Program of Transportation Development (Issues Related to Institutional and Economic Problems of the Overall System) COUNCIL OF MINISTERS TRANSPORT AND TRADE 1r poucy BOARD ('r'rps) _________ ..' I l | State Planning National Institute Organizatiolt: (— _ - - ——) of Statistics Transport Resea rch Center J Overall System (Section 8.2. l) l. lnstit‘t'i—tional Problems TTPB Study 8: repo rt l Ministry of Transport V Review coord. of transport planning and policy making 2. Econgmic Problems it L Jr i I a. Parallel b. idle c. batch of d.Unequal e. Political I. Lack of infra- capacity control participation rate licensing structures over rates in costs making in motor in rail I in rail water ‘ TTPB Study I: report Ministry of Transport Jr Abandon Increased Increase Introduce Introduce Review Establish practice of intra~ vehicle tariffs equal In licensing building structure utilisation in all participation approve parallel utilization modes in costs ta riffs intra- st ructure s igure re9. Z: A Tentative Pretogram of Trans nsartafion Developmem In (I ues Related to tern-tional Problems of the Overall System ‘ Decision Level: CWNCIL OF )lINISTERS Execution Level: TRAYSPORT AND TRADE POLICY BOARD (TTPB) (Sho rt-run) : L ______________ I I . v Research Assistance: State Pinning ' Natio onal Institute Organs-lion M‘— _ — E 7 70! Statistics Trans rt Research Center Problem Areas: Overall System (Section 8.2. l) 3. International Prob Luau»: b.Water C-A" transport gm‘wfl transport 1.Price 2. Opersfional 2. Discriminate 3. C11"B selling 1. Tokyo Z.Geneva 3.Warsaw 4. The Hague restrictions lega al sh onIe rence F greement Convention Convention Protocol restrictions {lag share practices purchasing a. Transit b. High 3. TIR b. Customs bond c. Foreign d.Inte rnational rges investment Convention transport exchange agreements base privilege accountability REI nsibilit : Ministry” TTPB TTPB mnistry Ministry Ministry Ministry of Min. of Trans rt, Forei Amrs Ministries of Transport In st of Fore of of TranBP- & l: External Economic Relations k ForeignAffna Affairs Transport Customs Finance For. Affairs Ministry Ministry Ministry 0 of of Cus ms Transp. Finance Action: Notify Study & Reine Extend Study Ease Reduce Ease Review a. Study Report Review and become (Short run) UN Report Duties Credit possibility formali— require- formsli- become membe" of trucking ties ments lie member- Provision in Wa ' Meetings with aswcisfion tra e ls aid export st: agreements Conferences iniporhzrs Execution Level: Ministry of Min' istry of Ministry of Mim‘ 'stry of Ministry of Ministry of Ministry of Ministry of (long—run) Transport Transport 1'74“!let TYIDBPOI" Tflul’m" Tnn'l’on Transport Transport Action Level: Assist Min. of Assist Min. of Evaluate Evaluate Pmc¢d“"' Evaluate 1‘9“”er '- assist Re view Review Continue seminars and Review new agreements- ng-run) For. Afizirs in Customs a. finnee performance at assist Min. of formalities Minist of practices to Confere meedngso nCIF mhocols. an” matters of reci- in transport of the Customs in customs I: assist Min. For. AIL-ur- maintain 3,501. pncdcegca "lung FOB purchasing assist Mini-try of . inan oreign rs procity, negotia- investments k Association hood transport of F ce Turn-h flag tions e . imports share Figure 9. 3: A Tentative Program 0! Transportation Development (Issues Related to Other Modal Prob ems COUNCIL OF MINISTERS TRANSPORT AND TRADE POLICY BOARD ITTFB) (Short—run] , Execution Le ve w c te Planning anal Institute Research Assistance: 1 Organization 6 r- - - ~ ->oI Siam Transport Resca rch Centur Problem Areas: Other Modazl Problems (Section 8. 2) 1.Motor Z.Water 3.5hipbuilding 4.Ra'11 transport transport transport 11 c Lack of 3 Le {11 [1 Re organiz. c. Rrorganiz. (LLatk of a.FT7. brNaval 111-k of d.Courdin;\1lon v. Longo 1.1mpa Lacko mUnrelated b. Duplication c.Lo‘Jr/1g d.Age‘Lor shipyurds shipyards pp rsunnel restri:liuns 1lcncouragoment activities in manuf ac- Custom ro111ng uring units formalities stock a.Age b.5ma . . ,g 1 distribution operating expertise structure ofp blic of ports free trade ‘ of vehicles units shipping zones 1 1011:1515 l 1 - r 1 _____ L, \ i ‘ 1 ‘ \v Ministries of Ministry Min. of Ministry of Ministries of n of Minisuy OI TTI’B Ministry of Mmislries of I‘indnce, Ministry of Transport T d ransp. and T nspor! rans . .CuSlo Transport rrarcpnn ‘ x,1 1.111 1121., <. ustorns, Finance Tfransporl Justice Extr F: 1') Relations R National and Traanort Defense l I v ction- Study 1. Establish a Pr raep tudy organization Study r Study 11505 m' Study r‘xisl— Study 11' Fasc Study m1 adopt study alternatives (Shorh’run) report training compr eeh: ns sive and prepare a rt idlo capacity my, lraimnp mporl {o rn1z1lilit'5 lneasurt‘s of and prepare a program maritime law reorganization plan programs (‘ncourugnhent plan of action Execution Levcl- Ministry of Ministry of Ministry of Ministries of ulTrAnSp. Mlnislry of Nlinistry of Ministry of Mmistry of Transport Ministry of Transport (Long- Transport Transport Transport Transporr 1. it N:t'l Defense Transport Transport Transport Ext. Econ. Rel. ‘ ‘ L 1 1 1 ment 3 Review Fancy Review 81 Review 8: Rev v19 Establish FTZ Establish and review Makr rhangcs Review word. Review 2r Review 1 “5151 Review performance 81 Action eve . P f on encoura mg update assist pe ewrio rmancc 1:1 in procedures of using & review of transp. assist M111, other Ministries make necessary changes (Lon qun) ”nova 1on t , g training Min of review 1 19 c pacity in performance policy of Customs we 1131,11 shipya rds plan on vehicles firms programs Jusnce Figure 9.4: A Tentative Program of Transportation Develoggent Decision Level: Execution Level: (Sho rt- run) Research Assistance: Problem Areas: Resensibilitx: Action: (Sho rt- run) Exe_c ution Level: (Long-run) Lotion bevel: (Long-run) (Other Related Issues) COUNCIL OF MINISTERS TRANSPORT ANDTRADF POLICY BOARD (TYPE) I Other Related issues (Section 8. 3) Y. —————————— --1 ‘I National Institute of Statistics V. State Planning , Organisation Transpo rt Resea rch Center LEast- Z.North- West South routes routes i 1 Mins. 0! Transport It Ext. Econ. Relations \! Study alternative routes, designate feasible routes Ministry of T ranspo rt Implement the plan of development (or selected routes I: review per-lo rmance 3. Infra- structure problems w Ministry of Transport 1 Study congestion in Istanbul and infrastructure through the Dardanelles 1 Ministry of Transpo rt Implement the infrast ructu re plan and review 4. lnte rnational problems W Mins. of Transport. Ext. Econ. Relations I: Foreign Affairs l Prepare an optimum plan of action in foreign politics Ministry of Trans p0 rt Assist Mins. of Ext. Econ. Relations I. Foreign Attairs slll'lillnlflul‘ .- - — , 294 many short-run actions indicated should not take mo re than three years to complete. The long-run action levels would gene rally take two to five years to reach. 295 9. 3 Further Research The major objectives of this research we re to strengthen Turkey's participation in the regional trade and improve her trade position by contributing to the foreign trade balance of Turkey. Through the set of measures proposed in the transport system, Turkey's participation in the regional trade will undoubtedly increase. No attempt will be made to accurately deter- mine the contributions made by the transit trade to the foreign trade balance, because such an estimate requires the levying of transit charges the optimum level of which is unknown at this point. Determining an equitable level of transit charges and estimating its contribution to the Turkish employment and income benefits and costs includ- ing balance of payments is a research by itself that must be undertaken as soon as possible. However, some rough estimates of total benefits to the Turkish balance of payments can be offered here in order to give an idea of the potential. Two major benefit groups can be identi- fied and a number of ”scenarios" can be developed: (1) (3) 296 Primary flows. Rough estimates made in Section 8.2. l of Chapter 8 show that if Turkish trucking firms and shiplines are encouraged to increase their participation in Turkish foreign trade movements to 50 percent, the net annual benefits would be $74. 2 million for highway and $17. 0 million for water transport. Seconda rLflows. Chapter 6 gives the following estimates of transit tonnage through Turkey: The Suez is closed: 26. 3 to 87. 5 million tons/year The Suez is Open: 17. 7 to 59.2 million tons/year A major portion of this tonnage is expected to move by foreign operators. However. with prOper inducement, Turkish ope rato rs are expected to participate in the transit trade. It is assumed that the rate of Turkish participation will range from 0 to 30 percent of total transit trade in increments of 5 percent. The net bene- fit to the Turkish balance of payments for transit tonnage moved by Turkish operators is assumed 297 to be $25 per toml/ The transit tonnage moved by foreign operators will be subject to transit fees and port handling tariffs. It is assumed that the transit fee will be $1, $2, and $3 per ton and the port handling fees will be $2 per ton. In addition, foreign operators will incur ope rating costs in Turkey (living expenses, gasoline, repairs, etc.) which are assumed to be $. 03 per ton-mile for an ave rage distance of 500 miles. Table 9. 1 shows the total net benefits to the Turkish balance of payments under different levels of transit fees and Turkish operator participation in the transit trade when the Suez is Open. The benefits shown in Table 9. 1 also include increased participation by Turkish operators in the movement The typical truck rate between Iran and West Germany is around $50 per ton. It is assumed that 50 percent of this rate will be spent by Turkish operators outside Turkey as operating expenses, commissions, etc. 298 .udok noa mac» coflme w .5 mo omensou some» $383 oflflcfimnom mam. mfigmmfiw :.¢ how new wmv mmw @vw mww co .m omw omw 3% new wmv va hmw oo .N 3%» mvv vmw wNv NNv m3“. mow CO .H on m 0 ma A: m o N N E 33% ooh uumnmuh ovdnH $3195... a“ cowuemwofluem Honda omO Smmxndfl mo 3mm . ammo? new £0332 waomo mmmnm 23 non? «modem munmgwumm mo monmfimm «oz .fimflnouom "H .m 03.3. 299 of primary flows. Table 9.2 shows the net benefits when the Suez is closed. When the Suez is open the net benefit to the balance of payments is expected to range from $409 to $471 million per year, depending on the Turkish operator participation in transit trade and the level of transit fees. The benefit is expected to range between $564 and $656 million per year when the Suez remains closed. Undoubtedly, even under the most pessimistic assumptions about transit trade size, Turkish Operator participation, transit fees, and the Suez, the chronic deficit in the balance of pay- ments will be eliminated and a surplus position will be attained for the first time since 1946. The lesson to be learned from this research is that a transport policy geared to external economic flows is capable of significantly contributing to the balance of payments position of Turkey. In order to correctly assess the direct and indirect benefits of having this 300 .nm0> you use» £0385 n .eN mo omdfldg one: fiends» ofimfifiemmom 05 mfigmmfiw eme owe nee ene one nNe :e co .n wne one nae ale eoe mom com 00 .N «Le ode doe «on men men uvem oo 4 on mm on ma O“ m o :0 s .. A “no. ovenfi 39:93”. 3 noflmmwoflnmm non—.9390 Amwxusfi mo 3.0% h u. H. *Aueow noa ”H353 we oomofiu m“ seamlmfi so; “modem munegem mo 0053mm qu flmflnouom ”N .n 03mm. 301 external orientation in transport planning and policy making on the Turkish balance of payments, further research is needed to get answers to the following: 1. The potential transit trade by major commodity groups that can be attracted through Turkey. Price and transit time elasticities of traded commodities between countries which will benefit from reduced transport costs and improved transit time. This information is needed to adjust the crude potential transit trade estimates found in the first item above to reflect incremental trade due to market expansion and/or increased demand. Comparative advantages of resource endowments in Turkey which can lend to in-transit process- ing industries and concentration-distribution centers. The impact of these units on economic develop- ment, employment, and human ecology, as well as its environmental constraints. £910“ ‘ . ,__ 302 5. Costs of transit service producing units versus total benefits derived as well as the distribut- tion of benefits. 6. Savings due to decreases in come rcial dis- service to Turkish exports by foreign trans- port firms whose countries' agricultural pro- duce compete with Turkish exports to European markets. When future research efforts are directed toward these questions, a mo re accurate assessment of benefits and costs will be possible. 303 9. 4 Integration of Marketing and Production The increased use of Turkish transportation firms will be the stepping stone for an integration of production and marketing activities. The first thing the Turkish operator will do is to open liaison or branch offices in foreign cities in order to follow up the formalities related to their activities. As time goes by, these offices could serve the Turkish expo rte rs as market facilitators, furnishing them timely and accurate information on market fluctuations and prices and a full range of distri- bution related services. At present the re are no such Turkish offices; the goods are shipped to a certain destina- tion based upon month-old data of demand and price; diver- sion and reconsignment are not practiced simply because of the lack of knowledge on the part of the exporter as to the conditions in other markets. What happens is that the shipment is delivered to a European intermediary at the original destination who accepts the shipment on a consignment basis. The intermediary does not have any concern for loss; therefore, he does not care if the 304 shipment partly or wholly deteriorates. This explains why most Turkish perishables deteriorate at the destina- tion city, even before being marketed, and, therefore, are thrown away without yielding any revenue to the exporter and the nation. Turkish branch offices in EurOpe will be at the disposal of the exporter in pro- viding him the necessary market information so that he can dive rt or reconsign his shipment to other cities where demand and price are more favorable than at the original destination. Without Turkish liaison offices this integration of market realities with production capability seems impossible. BIBLIOGRAPHY BIBLIOGRAPHY Books Allen, Henry E. , The Turkish Transformation, Chicago: The University of Chicago Press, 1935. Argentina, Republic of, Transportation Planning Group, A Long Range Transportation Plan for Argentina, Buenos Aires: 1962. Baade, Fritz H. C. , Expo rts and Invisible Receipts in Turkey, Paris: Organization for Economic Cooperation and Development, November 1961. 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