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1 AUTHOR ACCEPTED MANUSCRIPT FINAL PUBLICATION INFORMATION Microdynamics of Turkey's Expor Boom in he 2000s The definiive version of he ex was subsequenly published in The World Economy, (forhcoming), Published by Wiley and found a hp://dx.doi.org/doi/ /wec THE FINAL PUBLISHED VERSION OF THIS MANUSCRIPT IS AVAILABLE ON THE PUBLISHER S PLATFORM This Auhor Acceped Manuscrip is copyrighed by World Bank and published by Wiley. I is posed here by agreemen beween hem. Changes resuling from he publishing process such as ediing, correcions, srucural formaing, and oher qualiy conrol mechanisms may no be refleced in his version of he ex. You may download, copy, and disribue his Auhor Acceped Manuscrip for noncommercial purposes. Your license is limied by he following resricions: (1) You may use his Auhor Acceped Manuscrip for noncommercial purposes only under a CC BY-NC-ND 3.0 IGO license hp://creaivecommons.org/licenses/by-nc-nd/3.0/igo. (2) The inegriy of he work and idenificaion of he auhor, copyrigh owner, and publisher mus be preserved in any copy. (3) You mus aribue his Auhor Acceped Manuscrip in he following forma: This is an Auhor Acceped Manuscrip by Cebeci, Tolga; Fernandes, Ana M. Microdynamics of Turkey's Expor Boom in he 2000s World Bank, published in he The World Economy(forhcoming) CC BY-NC-ND 3.0 IGO hp:// creaivecommons.org/licenses/by-nc-nd/3.0/igo hp://dx.doi.org/doi/ /wec World Bank

2 Micro-Dynamics of Turkey s Expor Boom in he 2000s # Tolga Cebeci a Ana M. Fernandes b The World Bank January Absrac This paper examines he micro-dynamics behind he dramaic expor boom experienced by Turkey during he 2000s. Using disaggregaed exporer-level cusoms daa covering he universe of expor ransacions for Turkey during he period , we characerize firm-level dynamics in he expor secor and we decompose expor growh a he aggregae, secoral, and desinaion marke levels o idenify he role of firm urnover, desinaion urnover, and produc urnover. We show ha year-o-year aggregae expor growh is dominaed by growh in coninuous exporers, and for hese, growh is dominaed by expors o heir coninued desinaions and of heir coninued producs. However, he observed high degree of churning across firms, desinaions, and producs accouns for a subsanial par of Turkey s expor growh over longer periods. The paerns of micro-dynamics of expor growh are verified across secors and across groups of desinaion markes wih some excepions regarding expors o new emerging markes where ne exporer enry plays a more criical role for expor growh over longer periods. Keywords: Expor growh, Exporer dynamics, Enry, Exi, Inensive margin, Exensive margin, Turkey. JEL Classificaion codes: C81, F14. # We acknowledge he generous financial suppor from he World Bank research suppor budge and he Knowledge for Change Program (KCP), a rus funded parnership in suppor of research and daa collecion on povery reducion and susainable developmen housed in he office of he Chief Economis of he World Bank ( We hank hree anonymous referees as well as Zhihong Yu (he associae edior) for commens ha grealy improved he paper. We hank Turksa Presiden Birol Aydemir, and saff Doğan Böncü, Bülen Tungul, Şahin Çelik, Akın Bodur, Nusre Kılıç, Nilgün Arıkan and Sabi Cengiz Ceylan for allowing us access o he micro daa and conduc he empirical analysis in heir premises. The findings expressed in his paper are hose of he auhors and do no necessarily represen he views of he World Bank. a Consulan, Trade and Inernaional Inegraion Uni, Developmen Research Group, World Bank (cebeci@worldbank.org). b Senior Economis, Trade and Inernaional Inegraion Uni, Developmen Research Group, World Bank (afernandes@worldbank.org). 1

3 1. Inroducion Susained expor growh is a major economic goal for mos developing and developed economies. The link beween srong expor performance and srong growh performance is obvious in he case of China in he las wo decades, following on he evidence for oher Eas Asian economies in earlier decades. Following a shif in he heoreical rade lieraure o models where firm heerogeneiy plays a criical role in shaping rade flows such as hose of Meliz (2003) or Bernard, Eaon, Jensen, and Korum (2003), a burgeoning empirical rade lieraure has explored he increased availabiliy of very disaggregaed exporer-level daases from cusoms agencies and several sylized facs have been uncovered for muliple counries. 1 For example, sudies such as Eaon, Eslava, Kugler, and Tybou (2008) for Colombia and Amador and Opromolla (2013) for Porugal documen a remendous degree of churning in expor markes, wih a large proporion of exporers in a given year no having expored in he previous year. 2 Undersanding he micro-dynamics behind episodes of srong expor growh is a firs sep in he direcion of idenifying he ypes of policies ha may promoe expor growh. If new exporers experience fas growh and over ime conribue as much o expor growh as exising exporers hen he key policies are hose ha promoe survival and growh in expor markes and may be as general as ensuring an appropriae macroeconomic framework (paricularly in erms of he exchange rae) or as specific as ensuring access o finance and promoing echnological upgrading. In conras, if here is lack of dynamism in expor markes, hen he key policies are hose o overcome he barriers of enering ino expor markes including for example hose ha refer o promoing access by local firms o informaion on foreign markes. 3 In his paper we examine he micro-dynamics behind he dramaic expor boom experienced by Turkey from 2002 o 2008 as well as he underlying forces for he srong conracion ensuing from he global financial crisis and for he recovery hereafer. Turkish nominal expors grew by 265% beween 2002 and 2008, a very srong performance compared o he average for peers in he same income group (Brazil, China, Mexico, and Souh 1 The daases are someimes referred o as ransacions-level rade daases. See Bernard, Jensen, Redding, and Scho (2007, 2011) for reviews of he lieraure. 2 See also Iacovone and Javorcik (2008) for Mexico; Andersson, Lööf, and Johansson (2008) for Sweden, Freund and Pierola (2010) for Peru; Masso and Vaher (2011) for Esonia, De Lucio, Mínguez-Fuenes, Minondo, and Requena-Silvene (2011) for Spain, Fabling and Sanderson (2012) for New Zealand, among ohers. 3 Aropoulos, Friel, and Hallak (2011) argue ha enry ino expor markes (for differeniaed producs) is very dependen on a horough undersanding of feaures and operaions of foreign markes raher han on echnological capabiliies o design and manufacure producs for expor. 2

4 Africa) whose nominal expors grew by only 212%. Alhough he 2000s were marked by he explosive Chinese expor growh subsequen o is WTO accession, ha did no preven Turkey from experiencing is boom in aggregae expors, even if Turkish expors of exiles and clohing o he EU and he US were hur by ha accession. Ineresingly, Turkey was much more negaively affeced by he global financial crisis han is income group peers as is aggregae expor growh beween 2002 and 2011 was 279% relaive o 294% for is peers. 4 The 2000s were also a period when Turkey s expors experienced a srucural shif away from radiional exiles and clohing owards machinery and meals, and a movemen across desinaion markes wih he EU and EFTA losing ground o new markes in he Middle Eas and Norh Africa (MENA) and in Europe and Cenral Asia. Some of he raionales for he Turkish expor boom of he 2000s are he abandonmen of he currency peg afer 2001 which allowed he Turkish lira o devaluae (even hough laer in he 2000s he Turkish real exchanged rae appreciaed), improved macroeconomic condiions more generally, improved compeiiveness of he Turkish economy capured in susained increases in labor produciviy while uni labor coss remained well below hose of compeiors, and he enry ino force of he European Union-Turkey Cusoms Union which brough srong compeiive pressure domesically. 5 In his paper we ake he raionales for he episode of srong expor growh as given and we provide sylized facs on he micro-dynamics behind his growh. Using very disaggregaed exporer-level cusoms daa from Turkey for he period we characerize he firm-level dynamics in he expor secor and we decompose expor growh a he aggregae, secoral, and desinaion marke levels o examine he role of firm urnover, desinaion urnover, and produc urnover. 6 Our main findings are as follows. Firs, year-o-year aggregae expor growh in Turkey is dominaed by growh in expors of coninuing exporers, i.e., he firm inensive margin. For hese coninuing exporers, year-o-year growh is dominaed by expors o heir coninuing 4 These figures are based on WITS/COMTRADE daa and he growh raes are calculaed for each counry as 100* end year where designaes nominal expors. 5 See Aysan and Hacihasanoglu (2007) for a macro perspecive on he Turkish expor boom in he 2000s and Erdal, Günçavdi, and S. Kayam (2012) for a secoral perspecive. 6 While wriing his paper we became aware of a sudy by Lo Turco and Maggioni (2012) which uses a subse of he same exporer-level daa o examine he effecs of he global financial crisis of in Turkey by decomposing manufacuring expors ino he conribuion of he exensive and inensive margins a he firm and firm-produc level. Our focus here is, however, differen, as we are ineresed in undersanding he expor boom, and moreover we do no focus our analysis exclusively on manufacuring firms wih more han 19 employees as ha sudy does bu raher we cover all exporers of manufacuring bu also agriculural and mining producs. 3

5 desinaions, i.e., he desinaion inensive margin, and for hese coninuing desinaions, year-oyear growh is dominaed by expors of coninuing producs, i.e., he produc inensive margin. However, very high degrees of firm enry and exi ino expor markes and of churning along desinaion and HS 6-digi and CN 12-digi produc dimensions from year o year are also verified during boh he expor boom and he financial crisis and subsequen recovery. Second, ne exporer enry plays a more subsanive role for Turkish aggregae expor growh over he enire period han i does for year-o-year growh. Similarly, he churning across desinaions accouns for abou a hird of growh of coninuing exporers over he period and his percenage is even higher over he period. The churning across new and dropped HS 6-digi producs accouns for close o a quarer of growh of coninuing exporers in heir coninuing desinaions over he period and an even larger percenage over he period. The exensive margin along he more disaggregaed CN 12-digi level accouns for he majoriy of growh of coninuing exporers in heir coninuing desinaions, revealing a subsanial degree of experimenaion and resource reallocaion wihin Turkish exporers. Third, he micro-dynamics of secoral expor growh reveal across all secors a dominance of he firm inensive margin in accouning for growh year-o-year and over longer periods and a dominance of he desinaion inensive margin in accouning for growh of coninuing exporers year-o-year and over longer periods. In all secors, ne exporer enry accouns for a larger proporion of growh over longer periods han of year-o-year growh, and ne desinaion enry accouns for a larger proporion of coninuing exporers growh over longer periods han of year-o-year growh. The uniformiy of paerns across secors is a novel finding in he lieraure. Fourh, he micro-dynamics of bilaeral expor growh shows, across all groups of desinaion markes, a broad preeminence of he firm inensive margin in accouning for growh year-o-year and over longer periods and a preeminence of he HS 6-digi produc inensive margin in accouning for growh of coninuing exporers year-o-year and over longer periods. Noeworhy excepions are he imporance of ne exporer enry in accouning for growh in expors o new emerging markes of China and India over he period and in expors o he EU and EFTA over he period. In all groups of desinaions, ne exporer enry accouns for a larger proporion of growh over longer periods han of year-o-year growh and 4

6 ne produc enry accouns for a larger proporion of coninuing exporers growh over longer periods han of year-o-year growh during he expor boom. Fifh, he inensive and he exensive margins play a differen role in explaining expor growh for differen cohors of firms over he enire period: churning across desinaion markes and churning across HS 6-digi producs (for coninuing desinaions) is criical in explaining growh for he cohor of 2003 enrans ha coninue o expor unil 2011 bu is less imporan in explaining growh for he coninuing exporers. Two ineresing differences emerge from he comparison of he sylized facs on he micro-dynamics of expor growh in Turkey o hose for oher counries. Firs, he larger conribuion of ne exporer enry o growh over longer periods han o average year-o-year growh in Turkey is less dramaic han wha is found for emerging economies in Lain America such as Cosa Rica by Lederman, Rodriguez-Clare and u (2011), suggesing ha he size of enran and exiing exporers is less disan from he size of coninuing exporers in Turkey han i is in Cosa Rica since average enry and exi raes are of similar magniude in he wo counries (close o 30% per year). Second, he imporance of churning across desinaion markes in accouning for growh of coninuing exporers is subsanially larger in Turkey han in Cosa Rica, and may be linked o Turkey s larger economic size, level of developmen, and sraegic geographical locaion. Overall, our evidence poins o a subsanial degree of experimenaion by Turkish firms of he expor marke per se, of new desinaion markes and new producs by coninuing exporers wih high raes of enry and exi regisered a all levels boh in boom as well as in crisis and recovery, despie a dominance of he inensive margin in accouning for expor growh. Our evidence of subsanial rial and error is consisen wih an imporan role of idiosyncraic uncerainy on he profiabiliy of as well as of learning abou expor markes ha have been incorporaed ino recen rade models on expor dynamics wih heerogeneous firms. The res of he paper is organized as follows. Secion 2 describes he daa and some summary saisics. Secions 3 and 4 examine he dynamics of Turkish expor boom, one characerizes exporer dynamics and he oher conducs a series of expor growh decomposiions. Secion 5 discusses he heoreical mechanisms ha can raionalize he findings. 6 concludes. 5

7 2. Daa and Summary Saisics We use daa covering he universe of expor ransacions by all Turkish-based firms beween 2002 and 2011 colleced by he Turkish Cusoms Auhoriy and ransferred o he naional saisical insiue Turksa for revision and cleaning before being used for policy or research purposes. 7 The variables included in he daase are he idenificaion code of he exporing firm, he year of he ransacion, he expored produc code a he HS 12-digi level, he desinaion marke, he value of he ransacion (in USD), and he quaniy of he ransacion (in kilograms). 8 Given ha he exporing firm idenificaion codes can be followed over ime, our daase is a panel of firms a he firm-produc-desinaion-year disaggregaion level. The expor ransacions cover agriculural, mining, and manufacuring producs bu we exclude from our analysis expors in HS Chaper 27 (hydrocarbons such as oil, peroleum, naural gas, coal). The cleaning procedures ha we applied o he daase are as follows. Firs, alhough he daa is colleced a he Combined Nomenclaure CN 12-digi level and we will conduc some analysis a his level, we also aggregae i up o he HS 6-digi level which is a classificaion ha is comparable o hose used in oher counries and will hus faciliae benchmarking of he sylized facs for Turkey. To our knowledge, our sudy uses he mos disaggregaed classificaion for producs he CN 12-digi level - among recen empirical sudies relying on exporer-level cusoms daa. 9 The HS 6-digi and CN 12-digi classificaions were revised in 2007, i.e., during he sample period. We addressed hese revisions by going hrough a process of consolidaion among HS2002 and HS2007 classificaions as deailed in Cebeci (2012) and briefly described in he Appendix. The basic principle of consolidaion is o idenify he HS codes relaed o each oher ha were spli or merged wih he modificaions inroduced by he 2007 classificaion, and o replace hem wih a single code for he enire period. The consolidaed classificaion ha we use in our analysis conains a unique number of HS 6-digi codes and CN 12-digi codes ha are consisen across he enire period. 7 Noe ha he daa is available o researchers bu can be accessed only in Turksa s premises. The universe of expor ransacions is defined as all expor ransacions above 100 USD. 8 The value of he ransacion is provided as a Free on Board (FOB) figure. 9 The oher sudy using a highly disaggregaed CN produc classificaion we are aware of is ha of Fabling and Sanderson (2010) for New Zealand for which producs defined a he CN 10-digi level. 6

8 Second, Turkey uses he special rade regime which means ha cusoms record he sales from inland o heir own free zones/cusoms warehouses as expors. 10 We drop from our daase he observaions for sales o free zones since heir ulimae desinaion is unknown and ha makes hese expor ransacions difficul o compare o he res of he ransacions. 11 Sales o free zones/cusoms warehouses represen abou 2-5 percen of aggregae expors in Turkey. We also accoun for he changes in name ha some saisical erriories have undergone over ime due o spaial divisions. 12 Afer applying he cleaning procedures he daase includes a oal of 7.3 million firm-hs 6-digi produc-desinaion-year observaions (8.8 million firm-hs 12-digi produc-desinaionyear observaions) for he period. To assess he qualiy of our daase we compare he corresponding aggregae expor flows versus he aggregae expor flows available in he WITS/COMTRADE. The raios indicae ha he exporer-level daase represens 100% of he expor flows repored in WITS/COMTRADE, which is no surprising since boh are sourced from he same insiuion Turksa. Figure 1 shows Turkey s aggregae expors based on he exporer-level daase. Turkey experienced very srong expor growh, wih nominal expors quadrupling over he period. Nominal expors declined imporanly wih he global financial crisis in 2009, bu recovered srongly in The qualiaive paern is similar for growh in real expors. One imporan remark o make regarding our daase is ha by covering he universe of exporers i includes boh firms ha are producing he goods as well as firms ha are jus rading hem (wholesalers or reailers). While his does no pose a problem per se, i should be kep in mind for he inerpreaion of mos of our sylized facs on expor growh which apply o he enire se of Turkish exporers - producers and raders. 14 The inclusion of wholesalers or reailers 10 The special rade regime considers ransacions where he goods are sold from he domesic erriory only o boh hird counries and free zones/cusoms warehouses of he origin counry as expors. In conras, he General rade regime considers ransacions where goods are sold from any naional erriory (including free zones) o hird counries only as expors (see p. 32 of Unied Naions, 2008). 11 See p. 34 of Unied Naions (1998). 12 The Former Republic of Yugoslavia was divided ino Bosnia, Croaia and Serbia in 1996 and Serbia was furher divided ino Serbia and Monenegro in Some counries recognize Kosovo as an independen sae raher han a par of Serbia since For echnical and consisency purposes we rea Serbia, Monenegro and Kosovo as a single desinaion. While some oher erriories have undergone changes in names, hose changes eiher occurred before he beginning of our sample period or do no involve he merger or separaion of saes (e.g., Zaire changed is name o Democraic Republic of Congo in 2006). 13 The average annual growh rae of nominal expors during he period was 16%. 14 Mos previous sudies in he lieraure also consider he universe of exporers in a given counry. 7

9 in he se of exporers can conaminae he resuls from secoral expor growh decomposiions (ha will be considered in Secion 4.3) since wholesalers and reailers are jus providers of services hey are no producers of goods and ofen expor producs ha are no produced bu raher are impored. To overcome ha problem we will consider for he secoral expor growh decomposiions a sub-sample of he universe of exporers including jus manufacuring firms, idenified hrough a merger beween he exporer-level cusoms daase and he Turkish Srucural Business Surveys (SBS) conduced by Turksa annually. 15 Table 1 provides summary saisics on he cleaned exporer-level daase. The number of exporers in Turkey increases subsanially from 30,219 in 2002 o 51,371 in These numbers are large relaive o hose in counries wih similar GDP per capia, size in erms of GDP, or degree of openness (Cebeci, Fernandes, Freund, and Pierola, 2012). Over he sample period, Turkish exporers as a whole send more han 3,800 HS 6-digi producs o more han 200 desinaions. A he firm-level, he average exporer in Turkey expors 1.1 Million USD in 2002 and 2.5 Million USD in However, he disribuion of average expors per firm is highly skewed - as is he case in mos counries (Freund and Pierola, 2012) - since he median exporer in Turkey expors jus 50,000 USD in 2002 and 125,000 USD in The shares accouned for by he larges exporers are indicaive of a high degree of concenraion across exporers: he op 1% of exporers (i.e., he larges 1% of exporers according o heir expor values) accoun for close o 60% of oal expors in annually beween 2002 and 2011, alhough his degree of concenraion is no paricularly high from a cross-counry perspecive (Cebeci, Fernandes, Freund, and Pierola, 2012). 16 Regarding diversificaion a he firm-level, he average number of CN 12-digi producs per firm increased seadily from 9.2 in 2002 o 11.8 in 2011 and he average number of HS 6-digi producs per firm increased seadily from 7.9 in 2002 o 10.4 in 2011 while he average number of expor desinaions per firm also increased seadily from 3.4 in 2002 o 4.4 in We obained special access o he SBS for he purposes of his exercise. The SBS covers all manufacuring firms wih a leas 20 employees and a large sample of smaller firms wih less han 20 employees. We drop smaller firms since i is no possible o follow hem over ime due o annual re-sampling done by he SBS. The exporer-level cusoms daase and he SBS daase are merged based on a firm idenifier. 16 Focusing on year 2007, daa from he Exporer Dynamics Daabase shows ha, he concenraion of expor secors is much higher in Mexico, New Zealand, Souh Africa, or Spain han in Turkey. 17 The median number of HS 6-digi producs expored by firm was sable a 3 beween 2002 and 2010 increasing o 4 in 2011, while he median number of desinaions by firms was sable a 2 beween 2002 and

10 Table 2 shows he composiion of Turkey s aggregae expors across broad secors and across groups of desinaion markes and he corresponding numbers of exporers. 18 Panel A shows ha he major radiional expor secor in Turkey - exiles and clohing - declined in imporance from 2002 o A srucural shif in Turkish expors owards expors of machinery and meals is also eviden. The number of exporers per secor follows closely he paerns observed for he secors shares in oal expors. 19 Panel B shows a srucural shif in Turkey s expor desinaion markes from 2002 o 2011, wih he radiional EU and EFTA markes losing imporance and newer markes in he MENA region as well as in Europe and Cenral Asia gaining imporance. The numbers of exporers o regions oher han EU and EFTA almos doubled beween 2002 and 2011 while hose o EU and EFTA increased by only 40% over ha period Dynamics of Turkish Expor Boom: Characerizing Exporer Dynamics Our main objecive in his paper is o undersand he micro-dynamics behind he expor boom experienced by Turkey in he 2000s. We wan o assess he roles of he inensive margin - i.e., growh in he size of coninuing exporers - versus he exensive margin - i.e., relaed o he enry and exi of exporers - which means o undersand he role of churning among Turkish exporers in explaining he counry s expor boom. Bu we also wan o undersand he roles played by churning across desinaion markes and by churning across producs expored. Before discussing he expor growh decomposiion and is resuls, i is necessary o characerize he firms in Turkey according o heir saus in he expor marke as coninuing exporers, enrans, or exiers from year o year following he definiions provided below: Exporer : a firm ha expors in year ; Enran : a firm ha does no expor in year -1 bu expors in year ; Exier : a firm ha expors in year -1 bu does no expor in year ; Coninuing exporer : a firm ha expors in boh years -1 and ; Survivor : a firm ha does no expor in year -1 bu expors in boh years and The broad secors are defined in Appendix Table 1 based on he ype of HS 2-digi producs expored by he firms. While in erms of he share of oal expors he broad secors are muually exclusive, hey are no in erms of he number of exporers. Tha is, exporers ha expor muliple producs belonging o differen secors will be couned muliple imes. 19 Incidenally his suggess ha he average size of exporers does no change subsanially across secors over ime. 20 While in erms of he share of oal expors he groups of desinaions are muually exclusive, hey are no in erms of he number of exporers. Tha is, exporers ha expor o muliple groups of desinaions will be couned muliple imes. 9

11 Table 3 provides he number of firms and average expors per firm across heir saus in he expor marke. 21 In any sample year, abou wo hirds of firms are coninuing exporers ha expored also in he previous year. The number of coninuing exporers increases seadily from 21,655 in 2003 o 36,529 in The raes of enry ino and exi from he expor marke in Turkey are high, close o 30% bu his degree of exporer churning is similar o ha observed in oher emerging markes (Cebeci, Fernandes, Freund, and Pierola, 2012). The number of enrans is consisenly larger han he number of exiers in every year, hough he gap beween hese numbers shrinks owards he end of he sample period. Boh enrans and exiers exhibi subsanially smaller average expors han coninuing exporers. 22 Average expors per coninuing exporer in Turkey almos doubled from 2003 o 2008 bu declined in 2009 recovering hereafer in Average expors per enran and per exier increased by 60% and 90%, respecively, during he expor boom. While average expors per enran remained almos unchanged afer 2009, average expors per exier increased dramaically beween 2008 and 2009 suggesing ha some large Turkish exporers sopped operaing in expor markes as a resul of he global financial crisis. 23 Table 3 also shows ha despie a large oal number of exporers in Turkey each year, a subsanially smaller number of coninuous exporers exporing coninuously beween 2002 and 2011 (7,423) accoun for he bulk (on average 65%) of he counry s annual expors. Table 4 shows in he firs column he share of oal expors across he years accouned for by firms ha were exporing in 2002, he firs year of our sample (hus hose are firms for which we canno deermine wheher hey are coninuing exporers or enrans) and in he res of he columns he share of oal expors across he years accouned for by enrans ino expor markes in each year beween 2003 and For all cohors he share of expor enrans increases in he firs wo or hree years in expor markes bu generally declines hereafer: e.g., he cohor of enrans in 2003 accoun for 5.7% of oal expors in 2003 bu only 4.5% of oal expors by Ineresingly, enrans ha survive in expor markes for many years evenually accoun for an imporan share of oal expors. For example, in 2011, 35% of oal expors are accouned for 21 The firs column reproduces he informaion on he oal number of exporers in Turkey also shown in Table The same is verified for he comparison of median expors of coninuing exporers relaive o median expors of enrans and exiers. 23 This hypohesis is validaed by our finding of unchanged median expors for exiers beween 2008 and

12 by cohors of exporers ha enered from 2003 onwards and survived in expor markes unil 2011 (he oher 65% are accouned for by he firms ha were already exporing in 2002). The evidence in Tables 3-4 of a very large number of enrans and exiers in every year ha are small in erms of heir expors and accoun for a small proporion of oal expors is similar o ha found for exporers in Colombia by Eaon, Eslava, Kugler, Tybou (2008) and Porugal by Amador and Opromolla (2013). 4. Dynamics of Turkish Expor Boom: Expor Growh Decomposiions 4.1. Universe of Expor Transacions In order o assess he roles of coninuing exporers, new exporers, and exiing exporers in explaining oal annual expor growh, we conduc a radiional decomposiion following Eaon, Eslava, Kugler, and Tybou (2008), Bernard, Jensen, and Scho (2009), Lederman, Rodriguez-Clare, and u (2011), and Amador and Opromolla (2013) whereby Turkey s aggregae expor growh beween years -k and is decomposed as in: k 0.5 k N 0.5 where k * k C C C C E k k NEk * k NEk * * C C k k N k k k k 0.5 k are expors in, * k are average expors (across exporers) in -k, C indexes k variables for coninuing exporers (acive in expor markes in boh -k and ), E indexes variables for enrans (acive in expor markes in bu no in -k), and D indexes variables for exiers (acive in expor markes in -k bu no in ), while NE and N are he numbers of enrans and exiers, respecively. The firs erm in Eq. (1) capures he conribuion of coninuing exporers, i.e., he firm inensive margin, while he second and hird erms capure he conribuions of enrans and exiers o oal expor growh, i.e., he firm exensive margin. 24 k k (1) 24 The firs erm is he produc of he share of expors of coninuing exporers and heir average expor growh. The second erm is he sum of (i) he number of new exporers as a share of he average number of exporers in he 2 years and (ii) he deviaion of he average expors of new exporers from he average expors of coninuing exporers. The hird erm is he sum of (i) he number of exiing exporers as a share of he average number of exporers in he 2 years and (ii) he deviaion of he average expors of exiing exporers from he average expors of coninuing exporers. 11

13 Panel A of Table 5 presens he decomposiion in Eq. (1) for year-o-year aggregae expor growh beween 2002 and During he expor boom year-o-year growh was dominaed by growh of coninuing exporers: he firm inensive margin accouned on average for more han 80% of ha growh. This paern was unalered - if anyhing i was srenghened - during he global financial crisis as year-o-year expor growh in Turkey (negaive in ) was enirely dominaed by he decline or slower growh of coninuing exporers. This dominance of he inensive margin may appear as surprising given he impressive degree of exporer urnover documened in Table 3. However, i is easily raionalized once he relaively small size of enrans and exiers - also documened in Table 3 - is aken ino accoun. Even if enrans and exiers experience (on ne) very high growh raes, he much larger size of coninuing exporers implies ha over shor ime inervals he inensive margin dwarfs he exensive margin. In all years excep he posiive conribuion of enrans is larger han he negaive conribuion of exiers o year-o-year growh in Turkey, hence he conribuion of ne exporer enry is posiive. Enry in gross erms conribues on average wih 25% of growh - accouning for a paricularly large share (a hird) of growh in and in and, no surprisingly, exi makes a large negaive conribuion o expor growh in a he peak of he global crisis. The imporance of enry in gross erms suggess ha, condiional on survival, enrans grow fas and may play a key role in aggregae expors over he longer-erm, as we discuss nex. The las rows of Panel A of Table 5 show a decomposiion of aggregae expor growh over he enire period and he enire period. Coninuing exporers ha survive from 2002 o 2008 are he main conribuors o he 113.9% oal expor growh over he period. 25 Bu new exporers in 2008 (no presen in 2002) conribue wih 38% of growh over he period, which is a higher proporion han he average of 25% ha new exporers conribue o year-o-year growh. Coninuing exporers accouned for mos of he low aggregae expor growh (3.6%) over he period, despie remendous exporer churning being verified. The negaive conribuion of exporer exi over he enire period was very large hough i was compensaed by a srong posiive conribuion of new exporers, wih he role of 25 Toal expor growh in he row labeled of Panel A of Table 5 is obained as 0. (he dependen variable in Eq. (1)). Hence he percenage of 113.9% shown differs from he 265% discussed in Secion 1 which was obained as

14 exi being more concenraed in he years up o 2010 while he role of new expor opporuniies for Turkish firms being sable hroughou. Given he imporance of coninuing exporers for expor growh year-o-year and over longer periods in Turkey, i is crucial o undersand how heir growh comes abou, namely wheher hey replicae more of he same - serving heir radiional desinaion markes wih heir wellesablished producs - or wheher churning across desinaion markes and producs plays a role. Eq. (2) explores he role of desinaion dynamics for he expor growh of coninuing exporers: C C k C 0.5 k NED 0.5 C * C CCD CCD CCD CCD k k * C C CCD CCD 0.5 CED k NED * C k ND ND k k k k k k k k k C C C C C C C C k 0.5 k 0.5 k 0.5 k where he variables and indexes are defined as above, * C C k CD * C (2) are average expors of coninuing exporers in -k, CCD indexes variables for coninuing desinaions (served by coninuing exporers in boh -k and ), CED indexes variables for new desinaions (served by coninuing exporers in bu no in -k), and CD indexes variables for exiing desinaions (served by coninuing exporers in -k bu no in ), while NED and ND are he numbers of new and exiing desinaions of coninuing exporers, respecively. The firs erm in Eq. (2) provides he conribuion of coninuing desinaions, i.e, he desinaion inensive margin, while he second and hird erms provide he conribuions of new and exiing desinaions o expor growh of coninuing exporers in Turkey, i.e., he desinaion exensive margin. Panel B of Table 5 presens he resuls from he decomposiion in Eq. (2) for year-o-year growh. The desinaion inensive margin accouns for more han 80% of year-o-year growh of coninuing exporers during he expor boom. A he peak of he global financial crisis in his percenage was even higher wih he srong decline for coninuing exporers being almos enirely driven by a decline in heir expors o coninuing desinaions, mos likely he EU counries which were experiencing a severe recession. The prominence of radiional desinaions for coninuing exporers persiss as Turkey recovers from he crisis afer However, i is crucial o noe ha while he ne conribuion of new and dropped desinaions for expor growh of coninuing exporers is small hroughou Panel B, he degree of churning across desinaions is very high. In and in expors o new desinaions in gross erms represen 13

15 60% of he expor growh of coninuing exporers, hough his is couneraced by he negaive conribuion of dropped desinaions which represens more han 40% of heir expor growh. The las rows of Panel B of Table 5 show he decomposiion of expor growh of coninuing exporers across he desinaion dimension over he enire period and he enire period. Coninuing desinaions served boh in 2002 and 2008 accoun for he bulk of growh of coninuing exporers over he expor boom. Bu he ne effec of venuring ino new desinaions and dropping (possibly less profiable) desinaions by coninuing exporers is very imporan, represening a hird of heir growh beween 2002 and The major role of new desinaions in gross erms suggess ha he new desinaions ha do survive exhibi srong expor growh subsequenly. In he crisis and he subsequen recovery period of , a srucural shif is observed wih coninuing desinaions accouning for only 41% of expor growh due o a reducion in he dominance of radiional markes such as he EU for coninuing exporers and he emergence of new regional markes in he MENA region, as was documened a he aggregae level in Panel B of Table 2, and will be pursued furher in Secion 4.3. Eq. (3) explores he role of produc dynamics for he expor growh of coninuing exporers in heir coninuing desinaions: 0.5 CCD CCD k NEP 0.5 CCD k CCD * CCD CCDCP CCDCP CCDCP CCDCP k k * CCD CCD CCDCP CCDCP 0.5 CCDEP k NEP * CCD k NP k k k k k k k k k CCD CCD CCD CCD CCD CCD CCD CCD k 0.5 k 0.5 k 0.5 k where he variables and indexes are defined as above, NP CCD k * CCD CCDP * CCD (3) are average expors of coninuing exporers in heir coninuing desinaions in -k,ccdcp indexes variables for coninuing producs (expored by coninuing exporers in boh -k and ), CCDEP indexes variables for new producs (expored by coninuing exporers in bu no in -k), CCDDPindexes variables for exiing producs (expored by coninuing exporers in -k bu no in ), and NEP and NP are he numbers of new and exiing producs of coninuing exporers, respecively. The firs erm in Eq. (3) provides he conribuion of coninuing producs, i.e., he produc inensive margin, while he second and hird erms provide he conribuions of new and exiing producs o expor growh of coninuing exporers, i.e., he produc exensive margin. Noe ha he produc enry margin in his case capures wo differen dimensions, (a) he inroducion of enirely new 14

16 producs (no expored in -k) as well as (b) he re-rouing of producs across desinaions or he expansion of he se of desinaions argeed by an already expored produc. 26 Panel C of Table 5 presens he decomposiion in Eq. (3) focusing on HS 6-digi producs. The produc inensive margin accouned on average for 90% of year-o-year growh of coninuing exporers in heir coninuing desinaions during he expor boom and ha share increased o 97% a he heigh of he global financial crisis in , indicaing ha he radiional producs sen by Turkish coninuing exporers o heir coninuing desinaions severely hur by he recession explain almos enirely he srong decline (-22.1%) observed. Alhough on ne he conribuion of new producs and dropped producs is low hroughou Panel C, here is a high degree of churning along he HS 6-digi produc dimension. Paricularly in and expors of new producs in gross erms make up abou 70% of growh of coninuing exporers in heir coninuing desinaions, hough his is couneraced by a srong negaive conribuion of dropped producs which make up around 60% of ha growh. The las rows of Panel C of Table 5 show he decomposiion of expor growh of coninuing exporers in heir coninuing desinaions across he HS 6-digi produc dimension over he enire period and he enire period. Coninuing producs accoun for 77% of growh of coninuing exporers in heir coninuing desinaions beween 2002 and 2008 buu he inroducion of new producs in gross erms plays a meaningful role, accouning for more han a hird of ha growh. This implies ha he new producs ha survive see heir expor volumes grow fas subsequenly. The hin expor growh of coninuing exporers in coninuing desinaions (1.6%) during he period is enirely driven by he posiive conribuion of he ne enry of producs given ha he growh of coninuing producs is negaive (-1.2%). Finally, we presen in Panel D of Table 5 he decomposiion in Eq. (3) focusing on CN 12-digi producs. While coninuing CN 12-digi producs represen he bulk of year-o-year growh in coninuing desinaions by coninuing exporers from 2002 o 2011, he role of ne enry is much larger han in Panel C for HS 6-digi producs. This can be raionalized by he fac ha firms can innovae in heir coninuing desinaions, inroducing small varians of heir producs hrough a new CN 12-digi variey wihin he same HS 6-digi and dropping oher varieies a relaively low cos. Ineresingly, he las rows of Panel D of Table 5 show ha over 26 More specifically, (b) enails he case of a produc ha is inroduced by he firm in some of is coninuing desinaions bu was already expored o oher coninuing desinaions and he case of a produc ha was expored by he firm o exiing desinaions and is now inroduced o coninuing desinaions. 15

17 he enire period coninuing CN 12-digi producs make up only 40% of growh in coninuing desinaions of coninuing exporers while mos of ha growh is due o he churning across CN 12-digi producs. During he crisis and recovery he paern is even more exreme as growh of coninuing exporers in heir coninuing desinaions (1.6%) from 2008 o 2011 is enirely accouned for by ne enry of CN 12-digi producs given ha expors of coninuing CN 12-digi producs decline (by -2.3%). The evidence of a dominance of he firm inensive margin in accouning for year-o-year aggregae expor growh (in Panel A of Table 5) is similar o wha was shown for he U.S. by Bernard, Jensen, Redding, and Scho (2009) or Spain by Lucio, Minguez, Minondo, and Requena (2012), bu also for emerging economies such as Colombia by Eaon, Eslava, Kugler, and Tybou (2008). However, he desinaion exensive margin makes a more imporan conribuion for year-o-year growh of coninuing exporers in Turkey (in Panel B of Table 5) han in Cosa Rica where i accouns for 95% or more of ha growh (Lederman, Rodriguez- Clare, and u, 2011). The role of he produc inensive margin for growh of Turkish coninuing exporers in heir coninuing desinaions (in Panel C of Table 5) is similar o wha is shown for Poruguese coninuing exporers (Amador and Opromolla, 2013). Exensive margins are expeced o conribue less o expor growh year-o-year han over longer periods if enran and exiing exporers are small, a fac which is clearly esablished for Turkey (in Table 3). Sill, i is ineresing o noe ha he difference in he conribuion of ne enry o growh over longer periods relaive o is conribuion o year-o-year growh in Turkey (38% versus 25% discussed above) is less dramaic han wha is found for Cosa Rica (Lederman, Rodriguez-Clare, and u, 2011) By Secors The expor growh decomposiions discussed in Secion 4.1 consider he universe of exporers in Turkey bu he micro-dynamics underlying expor growh may differ across secors given he degree of heerogeneiy in global demand, rade policies, echnological developmens, and oher policies and shocks affecing he secors over he period. We presen in Table 6 he decomposiion of expor growh in each of seven secors along he firm dimension (applying Eq. (1) o each secor) in Panel A and along he desinaion dimension for coninuing 16

18 exporers in each secor (applying Eq. (2) o he coninuing exporers in each secor) in Panel B. 27 To our knowledge our sudy is he firs o consider such secoral decomposiions. As discussed in Secion 2, o overcome he poenial conaminaion of resuls from secoral expor growh decomposiions in he presence of wholesalers and reailers, we focus for his analysis on manufacuring firms wih more han 20 workers, which are a sub-sample of he universe of exporers and are idenified hrough a merger beween he exporer-level cusoms daa and he Turkish manufacuring survey daa. Noe ha he resuls from he decomposiions in Table 6 should be inerpreed differenly han hose in Table 5. For a given secor, he exensive margin in Table 6 capures boh firms ha sar or sop exporing alogeher (as in Table 5) as well as firms ha sar or sop exporing producs in ha paricular secor while being coninuing exporers, enrans and/or exiers in oher secors. For all secors, year-o-year expor growh is dominaed by he growh of coninuing exporers during he expor boom, as shown by Panel A. The firm inensive margin accouns on average for 87% of year-o-year expor growh in exiles and clohing and more han 93% in all oher secors. 28 This paern is inensified in all secors during he global financial crisis wih yearo-year growh being enirely dominaed by slow or negaive growh for coninuing exporers. During he expor boom here is, however, some heerogeneiy across secors in he conribuion of exporer enry in gross erms o year-o-year growh: enrans accoun for a very large proporion of growh averaging 60% in ransporaion bu only 10% o 20% in he oher secors. 29 The las rows of Panel A of Table 6 show ha he firm inensive margin accouns for close o 70% of expor growh over he enire period in exiles and clohing and ransporaion and for more han 80% in all oher secors. Exporer enry in gross erms as well as ne exporer enry represens a larger proporion of expor growh over ha longer period han of average year-o-year expor growh in all secors. 27 As menioned in Secion 2, we define secors based on he producs expored by he firm, no based on he economic aciviy of he firm. If firms expor muliple producs belonging o differen secors, hen firms will ener he expor growh decomposiions of all he secors o which heir expored producs belong. 28 The paricularly dominan role of he inensive margin found for expor growh of his sub-sample of manufacuring exporers is likely relaed o he fac ha hese exporers are larger on average han he universe of exporers (all employ more han 20 workers) and larger exporers likely exhibi less churning han smaller ones. 29 The percenage for ransporaion is based on growh unil 2007 only since in ha secor exhibis an unusual paern whereby negaive expor growh of -0.7% is more han fully accouned for by negaive growh of coninuing exporers of -1.2%, hus enry in gross erms of 4.1% represens -560% of expor growh compensaed by exi of -3.6% ha represens 300% of expor growh. 17

19 In all secors year-o-year growh of coninuing exporers is dominaed by growh in expors o heir coninuing desinaions during he expor boom, as shown by Panel B of Table 6. The desinaion inensive margin makes up on average close o or more han 80% of year-o-year expor growh of coninuing exporers and he share is highes in agriculural and food producs. A he peak of he global financial crisis in , he srong decline in expors o coninuing desinaions (which end o be he EU markes) was paricularly key in accouning for he srong decline in expors of coninuing exporers ha was verified in all secors. There is some heerogeneiy across secors in he conribuion of new desinaions in gross erms o year-o-year expor growh of coninuing exporers during he expor boom: hey accouned on average for 40% of ha growh in agriculural and food producs, chemicals, and machinery bu for a larger percenage in exiles and clohing (60%) and meals (80%). 30 The las rows of Panel B of Table 6 show ha he desinaions served by coninuing exporers boh in 2002 and in 2008 make up from 46% (in exiles and clohing) o 82% (in oher secors) of heir expor growh over he enire period. Across secors, new desinaions served by coninuing exporers in 2008 ha were no served in 2002 accoun for a raher similar proporion of coninuing exporers growh over he longer period as hey do for average year-o-year growh. However, ne desinaion enry represens a subsanially larger proporion of growh over he longer period han of average year-o-year growh of coninuing exporers in all secors By Desinaion Markes Turkey experienced an ineresing reorienaion of is rade flows away from radiional expor markes such as he EU and EFTA, as shown in Table 2. I is hus relevan o examine he forces dominaing expor growh in differen desinaion markes during he period. Table 7 presens he decomposiion of expor growh in each of four groups of desinaions along he firm dimension (applying Eq. (1) o each group of desinaions) in Panel A and along he HS 6-digi produc dimension for coninuing exporers serving each group of desinaions (applying 30 The percenage for ransporaion is also high based on growh unil 2007 only since in ha secor s coninuing exporers also exhibi an unusual paern whereby negaive expor growh of -1.2% is more han fully accouned for by negaive growh of coninuing desinaions of -1.8%, hus enry of new desinaions in gross erms of 6.8% represens -590% of expor growh compensaed by exi of desinaions of -6.2% ha represens 350% of expor growh of coninuing exporers. 18

20 Eq. (3) o he coninuing exporers in each group of desinaions) in Panel B. 31 To our knowledge our sudy is he firs o consider decomposiions of expor growh o a comprehensive se of desinaions. 32 Noe ha he resuls from he decomposiions in Table 7 should be inerpreed differenly han hose in Table 5. For a given group of desinaions, he exensive margin in Table 7 capures boh firms ha sar or sop exporing alogeher (as in Table 5) as well as firms ha sar or sop exporing o ha group of desinaions while being coninuing exporers, enrans and/or exiers in oher groups of desinaions. For all groups of desinaions, growh of coninuing exporers dominaes year-o-year expor growh during he expor boom in Panel A. The share of he firm inensive margin in yearo-year expor growh ranges from 76% for he Res of he World o 89% for Cenral Asia and Oher Europe. This paern is mainained during he global financial crisis, as he slow or negaive growh of coninuing exporers accouns enirely for year-o-year growh o all desinaions. Exporer enry in gross erms represens 30% o 40% of year-o-year growh in expors o he EU and EFTA, o Cenral Asia and Res of Europe, and o MENA. Enrans play a much more subsanive role in accouning for expor growh o he Res of he World from 2004 onwards and paricularly in a he early sage of he global financial crisis when new exporers in Turkey likely begun o focus more on expor opporuniies ouside he counry s radiional rading parners. The las rows of Panel A of Table 7 show ha coninuing exporers presen boh in 2002 and in 2008 conribue wih close o 60% of growh over he enire period in expors o EU and EFTA and o MENA and 70% in Cenral Asia and he Res of Europe. The paern described above for growh in expors o he Res of he World beween 2007 and 2008 is verified also over he enire period as he churning across exporers accouns for 56% of ha expor growh. However, here is a dramaic change in he findings for some desinaions over he enire period. Expor growh o he EU and EFTA (7.2%) is mosly driven by subsanial exporer enry as growh of coninuous exporers is acually negaive (2.2%) while negaive expor growh o Cenral Asia and Oher Europe (-3.4%) is mosly driven by subsanial exporer exi since growh of coninuous exporers is acually posiive (1.4%). However, noe ha ne 31 Noe ha firms may expor o muliple counries belonging o differen groups of desinaions (as defined in Table 2). In such cases, firms will be couned muliple imes as hey will ener he expor growh decomposiions of all he groups of desinaions o which hey expor producs. 32 Bernard, Jensen, Redding, and Scho (2009) provided resuls from a decomposiion of expor growh for a single group of desinaions: from he U.S. o Asian counries. 19