Exchange Rate, Imports of Intermediate and Capital Goods and GDP Growth in Belarus

The paper analyzes the short-run and long-run effects of imports of intermediate and capital goods on Belarusian economic growth for the period 2005 to 2015 taking into account large upward and downward exchange rate adjustments of Belarusian ruble. The empirical findings from the autoregressive distributed lag regressions indicate that there are negative effects of imports of intermediate goods on economic growth both in the short and long run. Second, contrary to the theory devaluation of the Belarusian ruble negatively influences both GDP growth and imports of intermediate goods in Belarus. Third, the results of Toda–Yamamoto causality test shows that GDP growth Granger causes growth in imports and exports, supporting the hypothesis that trade is more a consequence of the rapid economic growth in Belarus than a cause. Fourth, the findings from forecast error variance decomposition (VDC) confirm results obtained from TY causality test and additionally emphasize that changes in imports in Belarus are mostly driven by changes in exports especially in the long-run. Finally, the findings from VDC also indicate that the main contributor to growth fluctuations are domestic capital investments.