Determinants of intra-industry trade in Türkiye: do factor endowments really matter?

This paper studies empirically the determinants of the share of intra-industry trade (IIT) in Türkiye’s bilateral trade. In particular, it focuses on the role of factor proportions such as physical capital, human capital, and land per worker. Using panel data from 1995 to 2019 sourced from the Penn World Table and the World Bank, we decompose factor proportions into absolute differences capturing countries’ comparative advantages and sums reflecting factor abundance. The sample is divided into more and less developed partners to examine heterogeneity. We use the following estimation methods: Pooled Ordinary Least Squares (OLS), Random Effects (RE) and Hausman-Taylor (HT). To ensure robust identification and avoid omitted variable bias, we incorporate macroeconomic mass and policy controls, specifically GDP sum, GDP similarity and the Trade Freedom Index, into our baseline specifications, while also addressing unobserved heterogeneity and physical distance. The results provide support for the Chamberlin-Heckscher-Ohlin (H-O) hypothesis, showing that factor sums generally have a positive influence on intra-industry trade. Notably, human capital abundance emerges as a primary driver of trade with developed partners in particular, while differences in factor proportions, especially land, encourage inter-industry specialisation rather than IIT. These findings contribute to the literature on emerging economies by highlighting sectoral nuances, with implications for Türkiye's EU integration and agricultural policies.