Exports, investments and economic development of pre-accession countries of the European Union: an empirical investigation of Bulgaria and Romania

Abstract

This paper attempts to analyse the relationship between exports, investments and economic development in two pre-accession countries of the European Union, Bulgaria and Romania. For investigation of this relationship a multivariate autoregressive VAR model is used. The results of cointegration analysis showed that there is one cointegrated vector among exports, investments and economic growth for the two countries. Granger causality tests based on error correction models (ECM) indicated that there is a ‘strong Granger causal’ relation between economic growth and exports as well as between investments and exports for the two countries. In addition, economic development and capital accumulation in an economy seem to have just as much of an influence on exports as exports have on capital accumulation and economic development.

Notes

Towards the Enlarged Union Strategy Paper and Report of the European Commission on the progress towards accession by each of the candidate countries, Commission of the European Communities, Brussels, sec 2002, 1400 – 1412.

http://www.europe2020.org/en/ceec/transversal/bulgarie.htm and http://www.europe2020.org/en/ceec/transversal/roumanie.htm.

http://europa.eu.int/comm/enlargement/report2001/apro_en.pdf.

2002 Regular Report on Bulgaria's progress towards Accession, Commission of the European Communities, Brussels, sec 2002, 1400.

In terms of one-month credit and deposit rates, corrected by CPI inflation.

Towards the Enlarged Union Strategy Paper and Report of the European Commission on the progress towards accession by each of the candidate countries, Commission of the European Communities, Brussels, sec 2002, 1400 – 1412.

In Eastern and Central Europe, Slovenia, the Czech Republic, Hungary, Poland and Estonia were chosen as the first group of candidate countries, the so called ’front runners in’ 1998. Latvia, Lithuania, Slovakia, Bulgaria and Romania were invited to start EU accession negotiations in Helsinki.

Romania: Selected Issues and Statistical Appendix, International Monetary Fund (IMF, Country Report No. 01/16), January 2001.

The specification of a multivariate equation in a causality analysis is a major departure from the bivariate equations that have been widely used in the literature to examine causal relationships. The bivariate studies have been considered to suffer from specification error.

Cooley and LeRoy (1985) have criticized the VAR, being a system of unrestricted reduced form equations. See also Runkle (1987) for the controversy surrounding this methodology. However, all agree that there are important uses of the VAR model.