THE EXISTENCE OF FOREIGN TRADE BALANCE CONVERGENCE IN EU MEMBER AND CANDIDATE COUNTRIES: AN EMPIRICAL ANALYSIS

Abstract

The foreign trade deficit is an important problematic area for all countries, and it is the main cause of the current account deficit and the economic crises. It is useful to frequently analyze the level of these deficits. In this study, the presence of convergence among the EU member and candidate countries in terms of the foreign trade balance was analyzed with second-generation panel data analysis methods, operating under cross-sectional dependence, by using data from the 2000-2019 period. In the study, firstly the existence of cross-sectional dependence among the countries was analyzed and it was found that there was cross-sectional dependence among the countries included in the panel. In this study, firstly, CADF and HK panel unit root tests were carried out in order to test the existence of each country group's convergence to their group average; then in the country groups other than EU candidate countries, i.e., in the 36-country panel, in the EU28, EU15, and EU13 countries, it was determined that there was a convergence towards their own group means in terms of the foreign trade balance. Furthermore, the convergence of the country groups to the group average of the EU15 was tested by CADF and HK methods; and it was determined that the 36-country panel, the EU28, EU13 countries, and the EU candidate countries tend to converge towards the foreign trade balance of the EU15. Finally, the convergence of EU candidate countries to the EU13's foreign trade balance average was tested by CADF and HK methods, and according to the CADF tests, the EU candidate countries were unable to converge to the EU15 countries were also not able to converge to the EU13 countries. However, according to the HK test results, it was determined that the foreign trade balance of the 8 EU candidate countries converged to the foreign trade balance of the 13 countries that became members of the EU later. The robustness check was performed by using Fisher ADF, Fisher PP, LLC, and IPS panel unit root tests, and the results obtained were found to be consistent.