The Relationship Between Greek Exports and Foreign Income

Abstract

Abstract This paper assesses the effect of foreign economic activity on Greek exports. We employ data from 1995:I to 2016:IV and quantify the long-run foreign income elasticity of Greek exports. We establish a cointegration relationship and employ Dynamic OLS estimations. We find that the aggregate foreign income elasticity of Greek exports is positive and significant. When foreign income is decomposed to the main trading partners, we reveal that economic growth in Turkey and in emerging markets such as the Balkans, North Africa and the Middle East have the greatest impact on Greek exports. The impact of the traditional European trading partners of Greece (Germany and Italy) are found to be positive but insignificant. Finally, the dynamic analysis shows a positive interaction between real income growth in Turkey and Greek export growth at the short-run horizon. JEL classifications: C22, F43 Keywords: Greece, exports, foreign income, cointegration