Econometric analysis of foreign trade and economic growth relationship in Azerbaijan and Italy

Abstract

The aim of this study, unlike the studies in the literature, is to investigate whether the causal relationship between economic growth, export and import changes over time. In this study, it was analyzed whether the foreign trade of Azerbaijan and Italy had an effect on economic growth between 1992 and 2020. Granger causality and unit root test were used in the study. According to the test results, a causal relationship between growth and foreign trade has been determined for the Azerbaijan economy. However, a causal relationship between growth and foreign trade could not be determined for the Italian economy. According to the results of the analysis, the reason why such a relationship does not exist for Italy is due to the fact that growth is a factor that increases current account deficits and foreign trade deficit. In the relationship between foreign trade and economic growth, the direction and importance of the relationship may change according to the country and period. According to the Granger causality test, it has been determined that Azerbaijan's economic growth is the cause of its exports and imports with Italy with the condition of 10%. However, it has been determined that the foreign trade with Azerbaijan is not the reason for the economic growth of Italy.