The aim of this paper is to examine the nexus between exports, imports, and economic growth for the Kosovo’s economy in the period 2010-2021. Unit root tests were used to test the stationarity condition. The ADF, P-P and KPSS tests showed that the three variables are stationary in the first difference. The Johansen cointegration test showed that these variables are cointegrated in the short run. The lag length was set to five based on three criteria. The proposed model was free of serial autocorrelation and heteroskedasticity. Granger causality results based on Vector Autoregression showed that there is a bidirectional causality relationship between exports and economic growth. There is no causality between imports and economic growth. However, there is unidirectional causality from economic growth to imports and unidirectional causality from exports to imports. This study supports the ELG theory, i.e., exports are an important driver of economic growth.
Keywords: exports, imports, economic growth
The relationship between exports and imports and their impact on a country’s economic success is a hot topic for economists, policymakers, and to some extent, academics as economic growth is considered the best indicator of a country’s well-being or economic prosperity (Khan & Khan, 2021). The past two decades have seen tremendous trade integration and expansion, as well as a changing global trade environment (Sokolov-Mladenović et al., 2016). One of the concerns of how a country can achieve economic development is the export-led hypothesis which states that exports are critical to promoting economic growth (Jordaan & Eita, 2007). For decades, researchers have been interested only in the role of exports in spurring economic growth. According to proponents of the export-led growth (ELG) hypothesis, exports contribute positively to economic growth by facilitating the exploitation of economies of scale, especially in small economies; removing the binding constraint to increase import of capital and intermediate goods; increasing efficiency through increased competition; and promoting the diffusion of technical know-how through learning by doing (Mahadevan & Suardi, 2008).
Nevertheless, in addition to exports, the significance of import movements in the development of wealth and national prosperity is also recognized (Bakari et al., 2019). The relationship between exports, imports, and economic growth (as measured by GDP-Gross Domestic Product) occupies a prominent position in the economic development literature and it is a major policy concern for government planners and policymakers. To this end, it is particularly interesting to know the direction of causality between these variables (El Alaoui, 2015).
This paper provides new insights into the economic situation in Kosovo by analyzing the causal relationship between exports, imports, and economic growth using quarterly data from 2010:Q1 to 2021:Q3. It is one of the first studies to examine the relationship between these variables for Kosovo using actual data and a significant number of observations. With the exception of the study of Vardari (2016), who analyzed this relationship using annual data from 2004 to 2014, a total of 10 observations, no other study has been conducted. Moreover, this paper uses data from the Covid-19 pandemic period, which had a fundamental impact on the economies of each country. This paper is organized as follows: First, we review the literature on key variables and then discuss the economic and trade situation in Kosovo. Then, using the time series data, we empirically examine the causality between the variables.
Volume 6.No.2(2022): April – (Social Sciences Session)
ISSN 2661-2666 (Online) International Scientific Journal Monte (ISJM)
ISSN 2661-264X (Print)
DOI : 10.33807/monte.20222545
This is an open access article under the CC BY-NC-ND license (creativecommons.org/licenses/by-nc-nd/4.0/)