TITLE:
Trade Deficit and Economic Growth: Policy Advice to 15 European Union Countries
AUTHORS:
Noumbissi Tenku
KEYWORDS:
Imports, Trade Deficit, Regression, GDP Growth, Policy
JOURNAL NAME:
Modern Economy,
Vol.16 No.1,
January
20,
2025
ABSTRACT: This paper investigates the relationship between GDP growth and imports from high income economies, low-to-medium income economies and the Arab World for 15 European Union countries having a trade deficit as of December 2021. To achieve this purpose, annual data for the periods between 1999 and 2019 was collected from the World Development Indicators database of the World Bank. The data was then analyzed via the Random Fixed Effects Model, using imports from high income economies, low-to-medium income economies and the Arab World as explanatory variables and GDP growth as the response variable while maintaining Capital Growth, Labor Force Growth and Technological Growth as control variables. The results of the analysis revealed that imports from high income economies had a positive relationship with GDP growth at 1% significance, while imports from low-to-medium income economies and Arab World had a negative relationship with GDP growth at 1% significance as well. The study shows that under the circumstance of trade deficits, imports decomposed into regions of origin can affect GDP growth differently. From this, we learn that trade deficit should not always carry a negative connotation until, at least, there has been some exploratory data analysis of the underlying information related to export and import. In this paper, it is successfully demonstrated how GDP is affected if/when imports are decomposed into regions of origin for 15 EU countries facing a trade deficit. It contributes to the ongoing policy discussions surrounding trade deficits in the EU. By analyzing the consequences of trade deficits and providing policy recommendations to address these issues, this paper will contribute to the development of effective policies that support the long-term economic growth and prosperity of the EU and its member states. The 15 countries covered in this paper include: Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Estonia, France, Greece, Hungary, Latvia, Malta, Poland, Portugal, Romania, and Slovakia. These are countries there were reported by the European Union as having a trade deficit as of December 2021.