Foreign Trade And Economic Growth In Romania And The European Union €“ A Granger Causality Approach

The purpose of this article is to study the shape of, if any, Granger causality between the foreign trade indicators (at macroeconomic level) and the economic growth (measured by GDP) for the European Union and Romania. The analysis pursues the Toda-Yamamoto method, configured according to the characteristics of the dataset, because the variables are not stationary in their levels or even the first differences. Three research hypotheses have been defined, and the evaluation of each one of them has been done both on the variables and their elasticities. The results do not allow for the validation of any Granger causality. In the opinion of the authors, the limitations of the research are defined by the data available and their behavior. The analysis on a more extended dataset, a future research direction on this topic as more data become available, could overcome the restrictions established through the research methodology. The originality of the research is outlined by the specifics of the methodology applied, adapted to the software product used and to relevant contributions in the benefits and drawbacks of the Toda-Yamamoto procedure for outlining Granger causality, and the practical implications focus on the assessment of the contribution of the foreign trade to the evolution of the Gross Domestic Product. Given the fact that economic (GDP) growth rate can be used to compute the perpetual growth rate, the results can be viewed as useful for valuers, who are preoccupied with the growth rate of the Gross Domestic Product, and subsequently with the factors that can influence the future evolution of this indicator.