An Augmented Gravity Model with Political Risk: An Application of Turkiye

With globalization accelerating since the second half of the 20th century, there has been a great increase in the volume of international trade and a change in its composition has also been observed. However, it is known that political risk has increased in the same period all over the world. Political risk, an increasingly important type of risk, has strong effects on the direction and composition of international trade. Nevertheless, while the literature intensively examines the relationship between political risk and FDI, there are very few studies that test the relationship between international trade and political risk. This study, which includes 45 trading partners of Turkiye, analyzes the impact of political risk on Turkiye's foreign trade within the framework of the panel gravity model for the period 2003-2017. According to the results of the present analysis using the generalized method of moments, the real gross domestic product per capita of partner countries and the risk factor index are found to be important determinants of Turkiye's foreign trade. Moreover, it is concluded that only corruption, socioeconomic conditions, internal conflict, and law and order risks have an impact on international trade.