Relationship between Import-Exports and Economic Growth: The Kosova Case Study

Abstract

This paper, prepared in the framework of Granger casuality technique extended by taking account of recent relevant literature, analyzes the causality between exports, imports and economic growth in Kosovo. According to regression results, it is found that exports are a significant determinant of economic growth. But, when adding imports to the model, the effects of exports become statistically insignificant. We explore this relationship using the vector error correction models and we employ Granger causality technique in order to investigate the presence of causality among these variables.

The results show that both short run and long run relationships exist among these variables. Moreover, the finding suggests, 1) bidirectional Granger causality between GDP and export, 2) unidirectional Granger causality that runs from import to exports, 3) unidirectional causality running from exports to import.

The empirical results show that in Kosovo exports and accordingly economic growth are significantly affected by imports of intermediate. The high interest - low exchange rate policy implemented in recent years in the context of inflation targeting policy has supported this process, which has its limits.

Keywords: Trade, Import-Exports, Economic Growth, Panel Data Analysis

JEL Classification: F43, P33, C23