Measuring the degree of block interdependence between agricultural and non-agricultural sectors in Turkey

Based on the similarity of productive activities carried out by sectors, national input-output (IO) matrices may be divided into sub-matrices each representing a broader group of sectors called blocks. The strength of linkages among sectors that belong to different blocks would then show the degree of block interdependence. The measurement of this degree is useful in many areas including structural change analysis, evaluation of various support policy alternatives or for deciding whether a general or a partial equilibrium framework should be used to investigate the effects of an exogenous shock to a particular sector or a block. This paper introduces a technique that can be used to gauge the degree of block interdependence based on simulation results from demand and supply-side IO models. The application of the technique is illustrated for the case of interdependence between agricultural and non-agricultural blocks in Turkey which recently signed a Customs Union Agreement with the EU. The results indicate that, although Turkey's Agreement covers trade relations in non-agricultural sectors alone, the agricultural sectors must face indirect effects the magnitude of which depend, to a great extent, on the degree of interdependence between blocks considered here.