THE RELATIONSHIP OF FOREIGN TRADE AND ECONOMIC GROWTH IN MEDITERRANEAN COUNTRIES

Abstract

Foreign trade is the main source of economic growth due to the import of capital goods and raw materials to increase production, as well as the emergence of exports of surplus goods. The shortage of capital and the savings gap, which arose due to the insufficient level of income in developing countries, hindered the growth and development processes. For this reason, the interaction between imports and exports has taken on complex dimensions and mutual cause-effect relationships have been seen. The aim of this study is to analyze the relationship between economic growth and foreign trade in selected Mediterranean countries using annual data for the period 1995-2021. For this purpose, Kao and Pedroni cointegration, Pedroni FMOLS, Pedroni DOLS and Panel Granger Causality methods were used. As a result of the cointegration test, there is a long-term relationship between foreign trade and economic growth throughout the panel. According to the panel FMOLS and DOLS test results, exports and imports have a positive effect on economic growth. In this direction, as a result of the causality analysis carried out to determine the direction of the relationship, it has been seen that there is a bidirectional relationship between imports and exports and economic growth.