The Role of Agglomeration Economies and Spatial Spillovers on Provincial Export Performance of Turkey

Abstract

Global trade had a substantial surge in the first two decades of the 21st century. This increase is led by large urban centers and their hinterlands, and thus agglomeration economies and spatial spillovers become central to the sub-national geographic dimension of the increased global trade. The share of international trade in Turkish GDP has also been growing substantially since the early 2000s. This increase, however, has been highly heterogeneous across provinces. Using a spatial finite mixture model, this dissertation examines this spatial heterogeneity by estimating the determinants of the provincial export performance focusing on spatial spillovers, urbanization and localization economies. The results indicate that both agglomeration economies and spatial spillovers are significantly associated with the provincial export performance under the assumption of homogenous subpopulations. These associations are, however, different across provinces. Low-performing provinces have negative spatial spillovers from their neighbors and benefit from urbanization economies, while high-performing provinces have positive spatial spillovers and benefit from localization economies. These findings indicate that low-performing provinces are negatively affected by the expansion in the exports of neighboring provinces but benefit from the expansion and diversity in their local economies. High-performing provinces, in contrast, benefit from the increased exports in their neighborhoods and from increased concentration of the manufacturing activities in their local economy.