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Does the Foreign Trade-Driven Competitive Power of Transition Economies Converge Toward that of EU14 Countries? Evidence from Fourier Panel Unit Root Test with Sharp and Smooth Breaks

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  • Oguzhan Ozcelik

    (Kirklareli Universitesi, Babaeski Meslek Yukseokulu, Dis Ticaret Bolumu, Kirklareli, Turkiye.)

Abstract

This study analyzed whether the foreign trade-driven competitive power of the 13 transition economies (i.e., Albania, Bulgaria, Czech Republic, Estonia, Croatia, Latvia, Lithuania, Hungary, Macedonia, Poland, Romania, Slovenia, and Slovakia) converges toward that of the 14 main European Union countries (EU14) for the period of 1993:M01–2021:M08. The study used the Fourier panel unit root test with sharp and smooth breaks developed by Bahmani-Oskooee et al. (2014). The presence of a cross-sectional dependence among transition economies was examined using tests developed by Breusch and Pagan (1980) LM, Pesaran (2004) LMS, and Baltagi et al. (2012) LMBC. A cross-sectional dependence was observed among these countries. According to individual results obtained from the panel unit root test developed by Bahmani-Oskooee et al. (2014), by considering cross-sectional dependence, all countries except for Croatia were found to be in a closer position to EU14 countries in terms of foreign trade-driven competitive power. Considering the presence of sharp and smooth structural breaks in series, the analyses on the overall panel revealed that the 13 transition economies, which are included in the panel, converge toward EU14 countries in terms of foreign trade-driven competitive power. The testing method was able to successfully determine the sharp and smooth structural breaks in these countries. Moreover, the findings show that transition economies that joined the EU at a later stage or are candidates for the EU have been successfully carrying out the EU harmonization process. From another aspect, the EU is increasing their foreign trade-driven competitive power by providing them with financial and technical support.

Suggested Citation

  • Oguzhan Ozcelik, 2022. "Does the Foreign Trade-Driven Competitive Power of Transition Economies Converge Toward that of EU14 Countries? Evidence from Fourier Panel Unit Root Test with Sharp and Smooth Breaks," EKOIST Journal of Econometrics and Statistics, Istanbul University, Faculty of Economics, vol. 0(36), pages 257-282, June.
    • Handle: RePEc:ist:ekoist:v:0:y:2022:i:36:p:257-282
    DOI: 10.26650/ekoist.2022.36.1065053
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