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Russian and East European Finance and Trade, vol. 38, no. 3, MayJune 2002, pp. 3453. 2002 M.E. Sharpe, Inc. All rights reserved. ISSN 10612009/2002 $9.50 + 0.00.

SEDEF AKGNGR, R. FUNDA BARBAROS, AND NESE KUMRAL

Competitiveness of the Turkish Fruit and Vegetable Processing Industry in the European Union Market
Abstract: The study investigates the competitive power of Turkeys tomato, grape, and citrus fruit processing industry product exports (products with the highest shares in Turkeys total fruit and vegetable exports) in the EU market. The export similarity index reveals that Greece, Spain, and Portugal are Turkeys competitors. The revealed comparative advantage index and comparative export performance index show that Turkeys competitive power is higher than Spain and Portugal in processed grape exports, and is higher than Greece and Portugal in citrus fruit exports. There is no indication of competitiveness for processed tomato exports. The econometric import demand model reveals that relative export prices matter in determining Turkeys competitive power in the EU-processed tomato and grape markets. Key words: cost competitiveness, export similarity, Turkey and European Union trade relations, Turkish fruit and vegetable process.

Turkey has been in a Customs Union with the European Union since December 31, 1995. In December 1997, the Luxemburg European Council confirmed Turkeys eligibility for accession into the European Union and that the accession decision
Sedef Akgngr is an associate professor in the Faculty of Economics and Administrative Sciences, Department of Management, Isik University, Maslak, Istanbul; R. Funda Barbaros and Nese Kumral are an assistant professor and associate professor, respectively, in the Faculty of Economics and Administrative Sciences, Department of Economics at Ege University, Bornova, Izmir. An earlier version of this paper was presented at the METU Conference in Economics, 2000. The authors gratefully acknowledge the remarks by the participants in the session. They thank Serdar Sayan for being a reviewer for the research project funded by the Agricultural Economics Research Institute (AERI), out of which this paper was drafted.
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MAYJUNE 2002 35

will be judged on the basis of the same criteria as the other applicant states. The accession procedure requires Turkeys preparation and commitment to bring itself closer to the European Union in every aspect. During the preparation for the accession process, one issue of particular importance for the Turkish economy is free movement of goods and, particularly, products of agricultural origin. The related chapter, as laid out in decision no. 1/95 of the ECTurkey Association Council on implementing the final phase of the customs union, excludes agricultural products from eliminating customs duties, quantitative restrictions, and measures having equivalent effects. The association council puts special provisions related to agricultural products and notes that an additional period is required to put in place the conditions necessary to achieve free movement of agricultural products. Restraining the Turkish agricultural products from free trade with the European Union affects external trade of major agricultural products and products of first-stage processing directly related to the products of Turkish origin (for a list, see Annex II to the Treaty establishing the Community [European Community 1987]). One sector of particular importance for the Turkish economy is its fruit and vegetable processing industry, the majority of which includes first-stage processed agricultural products (Arikbay 1997). The food manufacturing sector is of considerable importance, with a 19 percent share of Turkeys total production of manufactured goods and an 11 percent share of Turkeys total exports. Within the food manufacturing sector, the fruit and vegetable processing industry is the second largest industry, covering almost onehalf of Turkeys total food industry exports (State Planning Organization 1998). The European Union is the largest export market for the Turkish fruit and vegetable processing industry goods. Due to health-related consumption patterns and trend toward Mediterranean diet, the demand for fruit and vegetable processing industry goods is expected to increase in the EU market (Arikbay 1997; European Community 1996). This positive trend in fresh and processed fruit and vegetable consumption in the EU market puts Turkey in a favorable position due to its high production and export potential of first-stage processed fruit and vegetable products. Alternatively, Turkey is in an unfavorable position compared to rival EU countries that produce and export the same group of products because of restrictions and customs duties to the Turkish agricultural products in the EU market, thus negatively affecting the competitiveness of the Turkish fruit and vegetable processing industry products in the EU market. Moreover, the figures in Table 1 reveal that the majority of the EU imports of goods with particularly high shares in Turkeys total fruit and vegetable processing industry exports (tomato, grape, and citrus fruit processing industry) are being supplied from the EU member countries, thus reflecting a movement of these goods between the member countries (Akgngr et al. 2001). Turkish fruit and vegetable processing industry exporters are therefore caught between the appeal of the growing demand potential in the EU market and concerns related to competition by the EU member countries within the EU market.

36 RUSSIAN AND EAST EUROPEAN FINANCE AND TRADE

Table 1 Respective Shares of EU Member Countries and Non-EU Countries in EUs Total Imports of Tomato, Grape, and Citrus Processing Industry Goods
Total imports (1,000 ECU) (1) Tomato 1989 1990 1991 1992 1993 1994 1995 1996 1997 1,710,410 1,834,136 2,046,730 1,959,106 1,687,234 2,050,204 2,318,241 2,574,387 2,550,810 1,448,208 1,491,107 1,674,833 1,633,816 1,368,214 1,671,869 1,820,127 2,031,436 2,362,422 262,202 343,029 371,897 325,290 319,020 378,335 498,114 542,951 188,388 84.7 81.3 81.8 83.4 81.1 81.5 78.5 78.9 92.6 15.3 18.7 18.2 16.6 18.9 18.5 21.5 21.1 7.4 EU imports from member countries (1,000 ECU) (2) EU imports from nonmember countries (1,000 ECU) (3)

(2)/(1)*100

(3)/(1)*100

Citrus 1989 1990 1991 1992 1993 1994 1995 1996 1997 Grape 1989 1990 1991 1992 1993 1994 1995 1996 1997 999,320 1,179,302 1,305,827 1,266,460 1,202,935 1,339,491 1,423,263 1,478,523 1,607,631 630,220 752,473 834,889 800,407 698,090 817,620 832,697 866,048 954,713 369,100 426,829 470,938 466,053 504,845 521,871 590,566 612,475 652,918 63.1 63.8 63.9 63.2 58.0 61.0 58.5 58.6 59.4 36.9 36.2 36.1 36.8 42.0 39.0 41.5 41.4 40.6 3,298,047 3,570,147 3,672,136 3,626,540 3,270,044 3,773,516 4,511,048 4,995,942 4,673,841 1,748,001 1,968,641 2,119,672 2,131,471 1,996,832 2,345,166 2,768,456 3,055,603 3,007,158 1,550,046 1,601,506 1,552,464 1,495,069 1,273,212 1,428,350 1,742,592 1,940,339 1,666,683 53.0 55.1 57.7 58.8 61.1 62.1 61.4 61.2 64.3 47.0 44.9 42.3 41.2 38.9 37.9 38.6 38.8 35.7

MAYJUNE 2002 37

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The fruit and vegetable processing and preserving sector includes all activities related to the processing of fruit and vegetables and their preservation. The main product categories, according to the European Union, are tomato and other vegetable preserves, jams and marmalades, pickled vegetables, and fruit juices and nectars (European Commission 1997). Turkeys classification of the fruit and vegetable processing industry covers: canned fruits and vegetables, frozen fruits and vegetables, dried vegetables, tomato paste, concentrated fruit juice, olives, dried figs, raisins, other dried fruits, nuts and nut products, and jams and marmalade as main product categories. Turkeys classification of the fruit and vegetable processing industry products includes first-stage processed agricultural products, which are subject to the European Community customs duties. Among the above product categories, tomato, grape, and citrus fruit processing industry products are the top three product categories with the highest shares in Turkeys total fruit and vegetable processing industry exports (Akgngr et al. 2002). Table 2 reports the product categories within the tomato, grape, and citrus processing industries. The aim of this study is to explore the competitive power of Turkeys tomato, grape, and citrus fruit processing industry exports in the EU markets. The study specifically aims to fulfill the following:
Objective 1: Determine the rival EU countries that produce and export tomato, grape, and citrus fruit processing industry products to the European Union. Objective 2: Measure the competitive power of Turkish tomato, grape, and citrus fruit processing industry products in the EU market against the rival EU member countries. Objective 3: Elaborate on the effect of relative prices on Turkeys market share in the EU market and explore whether relative prices matter in determining the relative market share of the Turkish exports and rival EU countries in the EU market.

Methods Determining the Rival EU Countries (Objective 1) We determine the rival EU countries by the export similarity index (ESI) developed by Finger and Kreinin (1979). The ESI determines whether the export composition of the rival countries or country groups becomes similar or dissimilar over time. We therefore ask the following question: To what extent does the share of Turkeys tomato, grape, and citrus fruit industry good exports in Turkeys total fruit and vegetable processing industry good exports match with those of each of the EU member countries?

2 ESIr = B (abr , c) = min xi ( a, c ) , xi (br , c) i -1

) 100,

Table 2 Product Categories within the Tomato, Grape, and Citrus Fruit Processing Industry (combined nomenclature)
Tomato processing industry Code 0702 2002 Explanation Tomatoes, fresh or chilled Tomatoes, prepared or preserved other than by vinegar or acetic acid Code 080610 080620 Grape processing industry Explanation Fresh grapes Dried grapes Code 0805 200791 Citrus fruit processing industry Explanation Citrus fruit, fresh or dried Citrus fruit jams, jellies, marmalades, purees or pastes, obtained by cooking, whether or not containing added sugar or other sweetening matter (excludhomogenized preparations of subheading 200710) Citrus fruit, prepared or preserved, whether or not containing added sugar or other sweetening matter or spirit, n.e.s.

ing

200950

Tomato juice, whether or not containing added sugar or other sweetening matter (excluding fermented or containing alcohol)

08112090

Loganberries, white currants, and gooseberries, uncooked or cooked by steaming or boiling in water, frozen, unsweetened

200830

MAYJUNE 2002 39

40 RUSSIAN AND EAST EUROPEAN FINANCE AND TRADE

(continues)

Table 2 (continued)
Tomato processing industry Code 210320 Explanation Tomato ketchup and other tomato sauces Code 200960 Grape processing industry Explanation Grape juice, including grape must, whether or not containing added sugar or other sweetening matter (excluding fermented or containing alcohol) ing 200920 fermented or containing spirit) Grapefruit juice, whether or not containing added sugar or other sweetening matter (excluding fermented or containing spirit) Juice of citrus fruit, whether or not containing added sugar or other sweetening matter (excluding fermented or containing spirit, mixtures, orange juice, and grapefruit juice) Code 200919 Citrus fruit processing industry Explanation Orange juice, whether or not containing added sugar or other sweetening matter (excluding fermented or containing spirit and frozen); grapefruit juice, whether not containing added sugar or other sweetening matter (exclud-

or

200930

MAYJUNE 2002 41

where xi(a,c) = the share of good i exports in Turkeys (market a) total fruit and vegetable industry good exports to the European Union (market c). xi(br,c) = the share of good i exports in country rs (market br) total fruit and vegetable industry good exports to the European Union (market c). r = France, Belgium, Netherlands, Germany, Italy, United Kingdom, Denmark, Greece, Portugal, Spain, Sweden, Finland, or Austria. i = (1) aggregate value of grape, tomato, and citrus fruit processing industry exports; (2) aggregate value of fruit and vegetable processing industry exports, excluding tomato, grape, and citrus fruit industry good exports. ESIr = export similarity index of country r and Turkey with respect to tomato, grape, and citrus fruit processing industry good exports among total fruit and vegetable processing industry exports. Measuring Competitiveness (Objective 2) Although the ESI for pairs of countries shows export patterns, it is not an index of an indication of international competitiveness. Competitiveness is a relative concept and it can only be measured through comparing pairs of countries or country groups. There are many ways of defining competitiveness. Most authors define competitiveness as an advantage of firms or industries vis--vis their competitors in domestic or international markets (Cockburn et al. 1998). Another definition is to secure a relatively high return on factors of production and relatively high employment levels on a sustainable basis (European Commission 1994). A broader definition of competitiveness is the ability to secure and profitably maintain market share (Martin et al. 1991). Given a broad definition of the concept, it is not surprising to find out that there is not a unique way to measure competitiveness. There are many ways to obtain an indicator of competitiveness. Among the most widely used competitiveness indicators are relative profits, costs, or prices (Atto 1987). Another way to demonstrate relative competitiveness is by observing revealed competitive advantage through export market shares of pairs of industries in a given market. Following Heidensohn and Hibberts (2000) suggestion that an analysis of revealed competitive advantage compared to cost or price differences offers a more valid approach for international competitiveness, we adopt the following competitiveness indices that focus on relative market share (Balassa 1965). Revealed Comparative Advantage (RCA) Index

RCA = ln XiB / X B / XiA / X A ,

{( ) ( ) (

)}

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where XiB is Turkeys exports of good i to the European Union; XB is Turkeys total exports to the European Union; XiA is the rival countrys exports of good i to the European Union; and XA is the rival countrys total exports to the European Union. A positive value of RCA means that Turkey has a comparative advantage against the rival EU country in the EU market. Comparative Export Performance (CEP) Index

CEP = ln XiB / X B / XiA / X A ,

where XiB is country Bs exports of good i, XB is country Bs total exports, XiA is the world total exports of good i, and XA is total world exports. An index value of Turkey higher than the index value of country r indicates relative competitive advantage of Turkey against country r. Determining the Effect of Relative Prices on Competitiveness (Objective 3) What factors determine the international competitiveness of a country over another country in a specific industry? There are two alternative viewpoints on the sources of international competitiveness. On one hand, competitiveness calls for high sensitivity of exports to costs. Relative costs matter for international competitiveness. On the other hand, relative costs on international trade become less important due to heightened competition on quality differences and more sophisticated products (Carlin et al. 2001). Factors such as the ability of creating and sharing knowledge and turning knowledge into innovations became major determinants to create and sustain competitive advantage (Porter 1990). Previous research on Turkeys international competitiveness suggests that Turkey has a competitive advantage over the rival countries, particularly in industries whose primary input is agriculture and that the competitiveness is due to cost differences (Barlow and S*enses 1995; Celasun and Rodrik 1989; Kotan and Sayan forthcoming; Krueger and Aktan 1992; Tansel and Togan 1987; Uygur 1987). Their findings are consistent with the Ricardian theory of competition, which suggests that the countries will specialize in industries in which they have a comparative cost advantage. We therefore explore whether the competitiveness of Turkish tomato, grape, and citrus fruit processing industry exports are due to cost advantage. To test the hypothesis that export prices determine the competitiveness of Turkey against rival firms in the EU markets, we estimate the EU import demand of processed tomatoes, grapes, and citrus fruits from the rival EU countries. The dependent variable is EU imports of processed tomatoes, grapes, and citrus fruits from Greece, Spain, and Portugal. The regression equations independent variables are own price, price of imports from Turkey (as a substitute), average EU

{(

)(

)}

MAYJUNE 2002 43

disposable income, and EU population. If Turkey has a competitive power due to price advantage, we expect that the EU exports from the rival countries will be significantly affected by the Turkish export prices. Turkish exports will therefore be considered as substitutes to the EU exports from the rival countries. The available Eurostat data set covers annual observations during the 19761997 period. Similar macroeconomic conditions may affect the EU import demand of each of the product groups from the rival countries, implying that the disturbances of the import equations of the three product groups from the three rival countries may be correlated. We therefore estimate that three sets have seemingly unrelated regression (SUR) equations: SUR equations of EU imports of processed tomatoes, grapes, and citrus fruits from the rival EU countries. When the residuals are correlated, the SUR estimator is more efficient, because it takes into account the entire correlation matrix of all equations. Empirical Results Rival EU Countries The resulting index numbers of export similarity are presented in Table 3. ESIs reveal that the processed fruit and vegetable export composition (when tomato, grape, and citrus products and the remaining processed fruit and vegetable products in aggregate are taken into account) of Greece, Spain, and Portugal became increasingly similar to the export composition of Turkey during the 19941997 period. We therefore explore and compare the price competitiveness of Turkeys fruit and vegetable exports with Greece, Portugal, and Spain.1 Competitiveness Indices Tables 4 and 5 report the RCA and CEP indices of Turkey and the three rival countries, respectively. Both indices reveal that Turkey has a comparative advantage over Portugal when the three product groups are considered in aggregate. When the three groups of products are considered separately, we see that Turkey does not have a competitive advantage for processed tomato exports over the rival countries. For the grape processing industry exports, Turkey has a competitive power over Portugal and Spain. For the processed citrus products industry, Turkey has competitive power over Portugal and Greece. Effect of Relative Prices on Competitiveness The time series models offer a framework for predicting the values of a particular variable by observing its past values. Once a stochastic model for the error term is determined and a time series model for the dependent variable is specified, one can estimate the coefficients of the model.

44 RUSSIAN AND EAST EUROPEAN FINANCE AND TRADE

Table 3 Similarity Index for Tomato, Grape, and Citrus Fruit Processing Industry Exports of Turkey and the EU Member Countries (importing countryEuropean Union)
Percent change in ESI during the 19941997 period

1994 T+G+C* Turkey vs. France Turkey vs. Belgium/ Luxembourg Turkey vs. Holland Turkey vs. Germany Turkey vs. Italy Turkey vs. United Kingdom 0.078 0.817 89.5 0.084 Other** ESI T+G+C

1995 Other ESI T+G+C

1996 Other ESI T+G+C

1997 Other ESI

0.788

87.2

0.089

0.743

83.2

0.029

0.923

95.2

6.37

0.179 0.183 0.154 0.183 0.17

0.817 0.761 0.817 0.661 0.817

99.6 94.4 97.1 84.4 98.7

0.175 0.212 0.166 0.212 0.18

0.788 0.768 0.788 0.676 0.788

96.3 98.0 95.4 88.8 96.8

0.164 0.257 0.198 0.257 0.208

0.743 0.738 0.743 0.661 0.743

90.7 99.5 94.1 91.8 95.1

0.054 0.078 0.066 0.077 0.075

0.923 0.914 0.923 0.872 0.923

97.7 99.2 98.9 94.9 99.8

1.91 5.08 1.85 12.44 1.11

Turkey vs. Ireland Turkey vs. Denmark Turkey vs. Greece Turkey vs. Portugal Turkey vs. Spain Turkey vs. Sweden Turkey vs. Finland Turkey vs. Austria

0.174 0.072 0.183 0.183 0.183 0.022 0.109 0.036

0.817 0.817 0.637 0.58 0.567 0.817 0.817 0.817

99.1 88.9 82.0 76.3 75.0 83.9 92.6 85.3

0.168 0.081 0.212 0.212 0.212 0.081 0.187 0.045

0.788 0.788 0.663 0.536 0.568 0.788 0.788 0.788

95.6 86.9 87.5 74.8 78.0 86.9 97.5 83.3

0.104 0.085 0.257 0.257 0.257 0.063 0.226 0.067

0.743 0.743 0.665 0.569 0.574 0.743 0.743 0.743

84.7 82.8 92.2 82.6 83.1 80.6 96.9 81.0

0.04 0.04 0.077 0.077 0.077 0.046 0.077 0.045

0.923 0.923 0.869 0.823 0.811 0.923 0.861 0.923

96.3 96.3 94.6 90.0 88.8 96.9 93.8 96.8

2.83 8.32 15.37 17.96 18.40 15.49 1.30 13.48

Notes: * Minimum value of the share of country rs and Turkeys total value of tomato (T), grape (G), and citrus fruit (C) processing industry goods in country rs and Turkeys total fruit and vegetable exports to the European Union. ** Minimum value of the share of country rs and Turkeys total value of fruit and vegetable processing exports excluding tomato, grape, and citrus fruit products in country rs and Turkeys total fruit and vegetable exports to the European Union.

MAYJUNE 2002 45

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Table 4 Revealed Comparative Advantage Index

Rival country 1994 1995 1996 1997

Index Spain 0.45 Greece 0.61 Portugal 1.78 Index (processed tomatoes) Spain 0.94 Greece 1.80 Portugal 0.31 Index (processed grapes) Spain 1.92 Greece 0.50 Portugal 5.66 Index (processed citrus fruits) Spain 1.75 Greece 1.43 Portugal 2.37

0.42 0.52 1.61 0.80 1.55 0.42 1.95 0.48 5.77 1.50 0.79 2.92

0.23 0.32 1.90 0.43 0.82 0.19 2.03 0.45 7.05 1.06 0.44 3.54

0.60 0.80 1.57 1.48 1.66 0.41 1.75 0.62 5.69 1.62 0.40 3.39

Note: Boldface indicates that the competitiveness of Turkish exports is higher than the rival countrys exports.

Inspection of autocorrelations and partial autocorrelations of the logarithms of the dependent variable of the equation reveal that all dependent variables can be specified by a first-order autoregressive process (AR(1)). We then add the other independent variables to the model with an AR(1) error structure and estimate the EU import demand function of processed grapes, tomatoes, and citrus fruit processing industry exports from Turkeys competitors. The variables used in the econometric model are defined in Table 6. The regression results are reported in Tables 7, 8, and 9. The models reveal that the EUprocessed tomato import prices significantly affect the EU-processed tomato imports from Greece, Portugal, and Spain. Unlike the other two rivals, the EU tomato imports from Greece depend on Turkeys export prices of processed tomatoes as well. This result implies that Turkish-processed tomato exports are substitutes for the EU-processed tomato imports from Greece. Competitiveness of Greece and Turkeys processed tomato exports to the EU market significantly depends on relative prices. With respect to processed grapes, Turkish imports are substitutes for the EU imports from Greece and Spain. The processed grape imports of the European

MAYJUNE 2002 47

Table 5 Comparative Export Performance Index

1994 1995 1996 1997

Index (aggregate of the three product groups) Greece 428.4 333.6 Portugal 277.9 310.6 Spain 823.6 797.0 Turkey 340.7 326.3 Index (processed tomatoes) Greece 455.8 415.8 Portugal 1063.0 937.1 Spain 599.0 615.4 Turkey 386.9 334.6 Index (processed grapes) Greece 682.0 787.0 Portugal 4.4 5.1 Spain 192.0 177.9 Turkey 621.8 687.8 Index (processed citrus fruits) Greece 329.0 156.3 Portugal 35.3 144.8 Spain 1138.3 1068.3 Turkey 223.8 208.9

325.8 188.5 736.2 317.7 386.8 770.0 559.4 385.4 705.7 4.6 141.9 638.6 189.6 18.5 980.6 196.5

408.1 232.6 690.6 293.2 478.7 708.0 583.0 392.0 745.8 7.3 159.4 572.8 255.9 110.8 928.6 149.9

Note: Boldface indicates that the competitiveness of Turkish exports is higher than the rival countrys exports.

Union are significantly affected by the import prices from the rival countries. However, when the prices of importing from Turkey is lower than the price of importing from the rival countries, Turkeys share in the EU market increases. The competitiveness indices show that Turkey has a revealed competitive power against Spain, and the competitive position seems to be due to price advantage since the EU importers consider Turkeys and Spains processed grape imports as substitutes. With respect to processed citrus fruit exports, own prices do not statistically affect the EU imports from Greece and Portugal. Own price is significant in Spains processed citrus fruit demand function. Spain has a competitive power against all rival countries in the EU market, including Turkey. None of the rival countries are considered to be substitutes to the Spanish products in the EU-processed citrus fruit market.

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Table 6 Variables Used in the Econometric Model

Variable Income What the variable measures EU gross national product in 1990 prices (1 billion euro) EU average price of processed tomatoes imported from Turkey (import value/quantity imported) (ECU) EU average price of processed grapes imported from Turkey (import value/quantity imported) (ECU) EU average price of processed citrus fruits imported from Turkey (import value/quantity imported) (ECU) EU average price of processed tomatoes, processed grapes and processed citrus fruits imported from Greece (import value/quantity imported) (ECU) EU average price of processed tomatoes, processed grapes and processed citrus fruits imported from Portugal (import value/quantity imported) (ECU) EU average price of processed tomatoes, processed grapes and processed citrus fruits imported from Spain (import value/quantity imported) (ECU) EU population (1,000) Average value 4,933.4 0.648

Pt

Pg

0.943

Pc

0.508

P t1,P g1,P c1

0.678 0.773 0.574 0.832 0.978 0.552 0.629 0.684 0.489 350,216.1

P t2,P g2,P c2

P t3,P g3,P c3

Population

Conclusion This paper investigated the competitive power of the Turkish fruit and vegetable exports in the EU markets. The findings suggest that in the context of the three product groups with highest shares in Turkeys total processed fruit and vegetable exports (processed tomatoes, grapes, and citrus fruits), Turkey has a competitive power in processed grape and citrus fruit exports, whereas there is no indication of competitiveness for processed tomato exports. With the exception of processed citrus fruit exports, the EU imports of processed grapes and tomatoes are significantly affected by the EU import prices for products of Turkish origin. It is therefore possible to conclude that relative export prices matter in determining Turkeys competitiveness in the EU-processed tomato and grape market.

MAYJUNE 2002 49

Table 7 EU Import Demand Function of Processed Tomatoes (SUR model estimates; dependent variable: ln(quantity imported by the EU from the partner country))
Independent variable Equation 1: Partner countryGreece Constant ln(P t1) ln(P t) ln(income) ln(population) AR(1) R2 (adjusted) DW statistic Equation 2: Partner countryPortugal Constant ln(P t2) ln(P t) ln(income) ln(population) AR(1) R2 (adjusted) DW statistic Equation 3: Partner countrySpain Constant ln(P t2) ln(P t) ln(income) ln(population) AR(1) R2 (adjusted) DW statistic Coefficient

t-statistics

45.51 2.55 2.36 9.40 10.76 0.76 0.65 1.69 107.03 1.91 0.58 7.62 4.08 0.02 0.95 1.64 13.86 1.02 0.05 0.98 1.27 1.11 0.85 1.87

0.16 2.80* 1.89* 0.69 0.41 6.71* 4.86* 4.72* 1.48 6.38* 2.38* 0.89 0.31 4.27* 0.24 0.50 0.35 11.57*

Notes: * significant at the 0.05 level. The significance of the price variables is from a one-tailed test.

Implications for Further Research The paper focuses on examining Turkeys competitive power of processed tomatoes, grapes, and citrus fruits with respect to relative market share against the rival EU countries in the EU market. The reported evidence in the paper implies that

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Table 8 EU Import Demand Function of Processed Grapes (SUR model estimates; dependent variable: ln(quantity imported))
Independent variable Equation 1: Partner countryGreece Constant ln(P g1) ln(P g) ln(income) ln(population) AR(1) R2 (adjusted) DW statistic Equation 2: Partner country: Portugal Constant ln(P g2) ln(P g) ln(income) ln(population) AR(1) R2 (adjusted) DW statistic Equation 3: Partner country: Spain Constant ln(P g2) ln(P g) ln(income) ln(population) AR(1) R2 (adjusted) DW statistic Coefficient

t-statistics

14.00 0.91 1.88 2.46 1.86 0.27 0.88 1.61 305.69 1.38 0.35 3.64 21.86 0.32 0.62 2.38 121.00 1.84 1.10 6.55 5.95 0.08 0.94 1.49

0.44 2.52* 6.74* 1.46 0.55 1.29 3.32* 3.01* 0.96 0.62 2.01* 1.61 5.42* 6.58* 12.33* 4.78* 2.42* 0.36

Note: * significant at the 0.05 level.

relative prices significantly determine the relative market shares of the respective countries in the EU market. Although this paper reveals evidence of cost competitiveness, it cannot compare the conditions of Turkey and the rival EU countries for sustained competitiveness. Sustainability in competitiveness depends on the political, legal, and macroeconomic foundations as well as microeconomic conditions for prosperity,

MAYJUNE 2002 51

Table 9 EU Import Demand Function of Processed Citrus Fruits (SUR model estimates; dependent variable: ln(quantity imported))
Independent variable Equation 1: Partner countryGreece Constant ln(P c1) ln(P c) ln(income) ln(population) AR(1) R2 (adjusted) DW statistic Equation 2: Partner countryPortugal Constant ln(P c2) ln(P c) ln(income) ln(population) AR(1) R2 (adjusted) DW statistic Equation 3: Partner countrySpain Constant ln(P c2) ln(P c) ln(income) ln(population) AR(1) R2 (adjusted) DW statistic Coefficient

t-statistics

188.51 0.25 0.99 30.69 34.37 0.32 0.60 1.26 297.63 0.31 0.50 4.81 20.62 0.37 0.65 0.98 59.95 1.73 0.01 3.26 3.56 0.86 0.95 2.17

2.92* 0.70 1.07 6.78* 4.54* 2.24* 4.27* 0.49 0.60 1.16 2.62* 2.22* 2.94* 7.63* 0.07 3.37 2.29* 14.80*

Note: * significant at the 0.05 level.

such as company operating practices and strategies, quality of inputs, infrastructure, and institutions. Competitiveness must therefore shift from comparative advantage (low-cost labor or natural resources) to competitive advantage due to mode productive and distinctive products and processes (Porter 2000). The focus of further research should consider exploring the conditions for sustainable competitiveness with respect to microeconomic foundations of productivity and investigate

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RUSSIAN AND EAST EUROPEAN FINANCE AND TRADE

the sophistication of the environment within which the firms in respective countries compete. Note
1. The percentage increase in the ESI suggests that Sweden should also be among the rival EU member countries for the tomato, grape, and citrus fruit processing industry goods. However, a close examination of the exports of subgroups of products reveal that Sweden is a major exporter of the product code 08112090 (see Table 2), while having a relatively low share in other product subgroups. Since Sweden does not compete in the same subgroups of products, it is not considered to be a rival country and therefore is excluded from the analysis.

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