Sustainability of merchandise trade flows between Croatia and other EU member states: Panel cointegration approach

Mile Bosnjak,Ivan Novak,Vlatka Bilas

doi:10.2298/pan160409022b

Abstract

This research examined the sustainability of merchandise trade flows between Croatia and other European Union (EU) member states. Merchandise exports and imports were disaggregated into bilateral merchandise trade flows between Croatia and nineteen EU trading partners for the period 1999-2014. Following Granger-causality and cointegration tests for panel data, we specified the model to be estimated. Using a pooled mean group (PMG) estimator for dynamic heterogeneous panel data, the relationship between Croatian merchandise export and import was assessed empirically. Research results revealed unsustainable Croatian merchandise exports and imports vis-?-vis nineteen EU partners.

Highlights

The dynamics of the relationship between exports and imports hold significant importance for any economy, since unsustainable trade deficit indicates a violation of international budget constraints over time and, in case the trade deficits persist, the domestic interest rates can be very high
The long-run coefficient amounts to 1.99 and it can be concluded that the long-run merchandise import from other European Union (EU) member states is responsive to changes in merchandise exports from Croatia to other EU member states
As suggested by the results of the cointegration tests and the pooled mean group (PMG) procedure, it is evident that Croatian merchandise exports and imports vis-à-vis its nineteen EU trading partners, form a long-run equilibrium relationship

Summary

Introduction

The dynamics of the relationship between exports and imports hold significant importance for any economy (see, for example, Bernardina Algieri 2013), since unsustainable trade deficit indicates a violation of international budget constraints over time and, in case the trade deficits persist, the domestic interest rates can be very high. Such an economy can transform into a heavily indebted country, which may affect the welfare of its citizens. The research hypothesis states: merchandise trade flows between Croatia and other EU member countries are not sustainable

Methods

Results

Conclusion