The essential role of international trade on economic growth

Abstract

Purpose- One of the most fundamental elements of the world economy is international trade. International trade is important in terms of supporting the development and economic growth of countries. In this context, the most important goal of countries is to increase their exports and reduce their imports. However, the impact of foreign trade on economic growth may vary in the short and long run. In addition, determining the quantitative effects of these variables on each other may be important for the development of national economies. Methodology- In line with these objectives, in this study, growth, export and import figures of G-20 countries for the last 25 years are taken. Co-integration tests are used to examine the long-run relationship between the variables. In addition, Wald Tests were used to investigate the short-run relationship. The mutual causality relations of the variables were analyzed with causality tests. Findings- According to the findings of the study, the effect of exports and imports on economic growth has been proven. With these results, it is clearly stated by co-integration tests that the export and import development of countries can support their economic growth in the long run. Moreover, in the short run, there is a bi-directional causality relationship between exports and economic growth and between imports and economic growth. Conclusion- The relationship between economic growth and foreign trade is multifaceted and affected by many factors. However, the importance of foreign trade for the national economy is seen in the short and long run. Keywords: Economic growth, foreign trade, exports, imports, GDP, co-integration. JEL Codes: B17, F40, F63