Foreign Trade and Demand-Driven Growth: The Case of Three Eastern European Countries
Foreign Trade and Demand-Driven Growth: The Case of Three Eastern European Countries

Summary/Abstract: The paper studies the relationship between foreign trade and economic growth in Bulgaria, Estonia and Lithuania for the period 2000-2023 in the framework of post-Keynesian theoretical models. Main tasks are to examine the impact of exports, imports and net exports on the dynamics of GDP, to highlight its peculiarities over time and across countries, and to characterise the main determinants of exports and imports for the three countries overall. The research methodology includes the use of descriptive analysis of the dynamics in GDP and in exports, imports, trade openness and net exports, the interdependencies between them and their links to changes in domestic demand, as well as the econometric analysis of the exports and imports functions using R Statistics panel data tools. The empirical results show that trade openness has been trending upwards, with the greatest growth impact coming from increased exports. The econometric estimation of the exports function with the first difference estimator reveals a positive impact of EU GDP and a negative impact of real effective exchange rate, while that of the imports function indicates a positive impact of own GDP and a negative impact of real effective exchange rate. The dynamics of economic activity are highly sensitive to the performance of major trading partners, but there is also a significant external crowding-out effect. However, the rise in imports was constrained by the non-typical impact of increasing relative prices, contributing to an upturn in net exports and higher economic growth.

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