Openness and Growth in Challenging Times: Analysing the trade-growth nexus for Slovakia

In this article, we analyse the trade-growth nexus for Slovakia. This country represents a critical case for such research because, by several measures, it is the most open economy in the EU, with the most Eurocentric trade, and has had one of the best growth performances over the period 1997-2014. In the context of economic crisis and recovery, countries have faced pressures to erect trade barriers. As an EU country, however, Slovakia is part of a trading bloc for which free trade is a sine qua non for strong economic performance. The question is – does trade actually help economic growth? Given the openness of Slovakia’s economy, and the Eurocentric nature of its trade in the context of the region’s sovereign debt crisis, Slovakia is a critical case study. We test six possible causal relationships between Slovakia’s imports, exports and growth, using the technique developed by Toda and Yamamoto, on quarterly data from 1997:1 to 2014:4. We find evidence supporting both the export-led-growth hypothesis and the import-led-growth hypothesis. None of the other four relationships were found to be significant. Overall, therefore, trade – imports as well as exports – have enhanced Slovakia’s growth and, with it, its economic growth performance.