Effect of COVID-19 on the mutual trade between Germany and the Visegrad Four

Abstract

This research employs the ARDL (Autoregressive Distributed Lag) model to examine the impact of COVID-19 on mutual trade between Germany and the Visegrad Four (V4). We focus on trade with Germany due to its status as the strongest and geographically closest trade partner of these four post-communist countries. Additionally, the extensive value chains of industrial production create robust economic connections between Germany, as an industrial leader, and the adjacent states, which is evident in the frequent mutual trade. The pandemic caused a sudden disruption of these value chains, particularly in the manufacturing sector, which dominates the region. In our analysis, we estimated the ARDL model for each country, considering both export and import data. Initially, we estimated long-run models, revealing that the coefficients of import and export models for the countries yielded different long-term results. In the short-run models, the dummy variables for both export and import models across all countries were significant, indicating that COVID-19 affected international trade between the V4 and Germany. Moreover, in all models, the coefficient of the dummy variable was negative, suggesting that COVID-19 had a detrimental effect on international trade. An important finding is that, depending on the nature of the dummy variable used, the effect of COVID-19 was observed during the pandemic period, with international trade returning to its previous trend post-pandemic. This experience highlights that while predicting the next pandemic and its negative impacts remains challenging, countries and their production chains are now better prepared. They have adapted to operate with greater flexibility, enabling them to effectively face similar unexpected challenges in the future.