This paper investigates the relationship between GDP growth and imports from high income economies, low-to-medium income economies and the Arab World for 15 European Union countries having a trade deficit as of December 2021. To achieve this purpose, annual data for the periods between 1999 and 2019 was collected from the World Development Indicators database of the World Bank. The data was then analyzed via the Random Fixed Effects Model, using imports from high income economies, low-to-medium income economies and the Arab World as explanatory variables and GDP growth as the response variable while maintaining Capital Growth, Labor Force Growth and Technological Growth as control variables. The results of the analysis revealed that imports from high income economies had a positive relationship with GDP growth at 1% significance, while imports from low-to-medium income economies and Arab World had a negative relationship with GDP growth at 1% significance as well. The study shows that under the circumstance of trade deficits, imports decomposed into regions of origin can affect GDP growth differently. From this, we learn that trade deficit should not always carry a negative connotation until, at least, there has been some exploratory data analysis of the underlying information related to export and import. In this paper, it is successfully demonstrated how GDP is affected if/when imports are decomposed into regions of origin for 15 EU countries facing a trade deficit. It contributes to the ongoing policy discussions surrounding trade deficits in the EU. By analyzing the consequences of trade deficits and providing policy recommendations to address these issues, this paper will contribute to the development of effective policies that support the long-term economic growth and prosperity of the EU and its member states. The 15 countries covered in this paper include: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Estonia, France, Greece, Hungary, Latvia, Malta, Poland, Portugal, Romania, and Slovakia. These are countries there were reported by the European Union as having a trade deficit as of December 2021.
References
[1]
Ahmad, R., Raza, K., & Saher, S. (2017). Impact of Trade Openness on Economic Growth: A Case Study of Pakistan. Review of Economics and Development Studies, 3, 57-68. https://doi.org/10.26710/reads.v3i1.165
[2]
Ali, A. A. (2021). Trade Deficit and Economic Growth: Using ARDL Technique for the Economy of Pakistan. International Journal of Business and Management Sciences, 2, Article 3.
[3]
Aung, W. T. (2017). Relationship between Trade Deficit and Economic Growth. Master’s Thesis, KDI School.
[4]
Aydin, C., & Esen, Ö. (2016). The Threshold Effects of Current Account Deficits on Economic Growth in Turkey: Does the Level of Current Account Deficit Matter? International Journal of Trade, Economics and Finance, 7, 186-193. https://doi.org/10.18178/ijtef.2016.7.5.520
[5]
Bakari, S., & Mabrouki, M. (2017). The Effect of Agricultural Exports on Economic Growth in South-Eastern Europe: An Empirical Investigation Using Panel Data. Journal of Smart Economic Growth, 2, Article 4.
[6]
Belke, A., & Dreger, C. (2013). Current Account Imbalances in the Euro Area: Does Catching Up Explain the Development? Review of International Economics, 21, 6-17. https://doi.org/10.1111/roie.12016
[7]
Blavasciunaite, D., Garsviene, L., & Matuzeviciute, K. (2020). Trade Balance Effects on Economic Growth: Evidence from European Union Countries. Economies, 8, Article 54. https://doi.org/10.3390/economies8030054
[8]
Boyko, A. A., Kukartsev, V. V., Tynchenko, V. S., Eremeev, D. V., Kukartsev, A. V., & Tynchenko, S. V. (2019). Simulation-Dynamic Model of Long-Term Economic Growth Using Solow Model. Journal of Physics: Conference Series, 1353, Article ID: 012138. https://doi.org/10.1088/1742-6596/1353/1/012138
[9]
Çetintaş, H., & Barişik, S. (2009). Export, Import and Economic Growth: The Case of Transition Economies. Transition Studies Review, 15, 636-649. https://doi.org/10.1007/s11300-008-0043-0
[10]
Ding, S., & Knight, J. (2009). Can the Augmented Solow Model Explain China’s Remarkable Economic Growth? A Cross-Country Panel Data Analysis. Journal of Comparative Economics, 37, 432-452. https://doi.org/10.1016/j.jce.2009.04.006
[11]
Durmuş, A. (2019). Economic Growth and Trade Deficit in Turkey. Journal of Social Sciences and Education, 2, Article 1.
[12]
Eberly, L. E. (2007). Multiple Linear Regression. In W. T. Ambrosius (Ed.), Methods in Molecular Biology™ (pp. 165-187). Humana Press. https://doi.org/10.1007/978-1-59745-530-5_9
[13]
Ghosh, A., & Ramakrishnan, U. (2017). Current Account Deficits: Is There a Problem? There Can Be Consequences When the Amount a Country Spends Abroad Is Wildly Different from What It Receives from the Outside World. Finance & Development,5, 10.
[14]
Helmold, M. (2019). Tools in PM. In M. Helmold (Ed.), Progress in Performance Management (pp. 111-122). Springer. https://doi.org/10.1007/978-3-030-20534-8_8
[15]
Laitala, E. (2022). How to Expand Business to China. https://www.theseus.fi/bitstream/handle/10024/744434/Laitala_Emmi.pdf?sequence=2
[16]
Maltz, A., Carter, J. R., & Maltz, E. (2011). How Managers Make Sourcing Decisions about Low Cost Regions: Insights from Perceptual Mapping. Industrial Marketing Management, 40, 796-804. https://doi.org/10.1016/j.indmarman.2011.01.003
[17]
McNeill, J. (1999). GDP Growth and Human Wellbeing: A Brief Look at Why We Need a Better Measure of Progress.
[18]
Nyoni, T., Musisinyani, B., & Nyoni, M. (2017). The Impact of Current Account Deficits on Economic Growth in Zimbabwe (SSRN Scholarly Paper No. 3051008). https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3051008
[19]
Özer, M., Žugić, J., & Tomaš-Miskin, S. (2018). The Relationship between Current Account Deficits and Growth in Montenegro: ARDL Bounds Testing Approach. Journal of Central Banking Theory and Practice, 7, 5-24. https://doi.org/10.2478/jcbtp-2018-0020
[20]
Parikh, A. (2006). Relationship between Trade Liberalization, Growth, and Balance of Payments in Developing Countries: An Econometric Study. The International Trade Journal, 20, 429-467. https://doi.org/10.1080/08853900600941092
[21]
Rehman, S. U., Taqi, M., Rahman, S. U., & Ahmad, W. (2021). Impact of Trade Deficit on Economic Growth: A Case of Some Selected Countries. International Research Journal of Management and Social Sciences, 2, 27-39. https://doi.org/10.53575/irjmss.v2.2(21)3.27-39
[22]
Sahin, I. E., & Mucuk, M. (2014). The Effect of Current Account Deficit on Economic Growth: The Case of Turkey. In 11th International Academic Conference (pp. 321-329). https://ideas.repec.org/p/sek/iacpro/0301828.html
[23]
Shakil, A., & Imran, K. (2022). The Impact of Globalization, Foreign Direct Investment and Trade Openness on Poverty: A Case Study of Pakistan. Economic Consultant, 37, 41-60. https://doi.org/10.46224/ecoc.2022.1.4
[24]
Shingil, M. E., Ozdeser, H., & Saliminezhad, A. (2022). Investigation of Balance of Payment Constrained Growth Model: The Impact of Export Growth, Capital Flows, and Real Effective Exchange Rate on Growth of the Uk. Sage Open, 12, 1. https://doi.org/10.1177/21582440221085011
[25]
Simonovska, I., & Waugh, M. E. (2011). The Elasticity of Trade: Estimates and Evidence. Journal of International Economics, 92, 34-50.
[26]
Sönmez, E. F., & Yalçınkaya, H. (2017). The Relationship between Current Account Deficit and Economic Growth: Panel Causality Analysis (pp. 1-15). https://www.researchgate.net/profile/Filiz-Eratas-Soenmez/publication/323586276_The_Relationship_Between_Current_Account_Deficit_and_Economic_Growth_Panel_Causality_Analysis/links/5a9ef1f80f7e9badd99e7b2e/The-Relationship-Between-Current-Account-Deficit-and-Economic-Growth-Panel-Causality-Analysis.pdf
[27]
Thirlwall, A. P. (1997). Reflections on the Concept of Balance-of-Payments-Constrained Growth. Journal of Post Keynesian Economics, 19, 377-385. https://doi.org/10.1080/01603477.1997.11490117
[28]
Triyawan, A., Latifa, H., Seriki, L. L., & Alfaqeeh, A. (2021). Influence of Export and Import Toward Economic Growth in Canada in 2010-2019. Fokus Ekonomi: JurnalIlmiah Ekonomi, 16, Article 2.
[29]
Tunian, A. (2015). Current Account Deficit and Economic Growth in Armenia. Studies and Scientific Researches. Economics Edition, 21, 64. https://doi.org/10.29358/sceco.v0i21.299
[30]
Uyanık, G. K., & Güler, N. (2013). A Study on Multiple Linear Regression Analysis. Procedia—Social and Behavioral Sciences, 106, 234-240. https://doi.org/10.1016/j.sbspro.2013.12.027
[31]
Velnampy, T., & Achchuthan, S. (2013). Fiscal Deficit and Economic Growth: A Study on Sri Lankan Economic Perspective. Developing Country Studies, 3, 166-174.
[32]
Yilmazkuday, H. (2019). Estimating the Trade Elasticity over Time. Economics Letters, 183, Article ID: 108579. https://doi.org/10.1016/j.econlet.2019.108579
[33]
Zemanek, H., Belke, A., & Schnabl, G. (2010). Current Account Balances and Structural Adjustment in the Euro Area. International Economics and Economic Policy, 7, 83-127. https://doi.org/10.1007/s10368-010-0156-x
