Empirical Analysis Of Trade Liberalization, Exports And Imports On Libyan Economy With Special Reference To Agricultural Sector

Abstract

Since the freezing of international sanctions on the Libyan economy in 1999, the government has been gradually applying measures to develop the country’s economy through policies that advocate economic openness. At the same time, in order to meet the conditions for World Trade Organization membership and embrace a more open and integrated economy with the rest of the world, Libya has introduced several steps towards trade policy reforms over the last decade. This study therefore investigates the impact of exports and imports on economic and agricultural growth under the application of trade liberalization and merchandise import demand. The thesis investigated three different aspects of the opennesss-growth nexus. Firstly, by applying the Autoregressive Distributed Lag Model to test the long-run relationship among the variables. The results confirm the long run relationship among the series and exports and imports have a positive and negative impact on economic and agricultural growth respectively. Furthermore, dummy liberalization was found to be negatively related. Secondly, based on vector Estimated Error-Correction model, the study investigated the Granger Causality through taking into account the polices of trade liberalization as an exogenous variable. The empirical results reveal a unidirectional causal relationship running from GDP growth to exports, a unidirectional causality between agricultural imports and agricultural growth in the short run. Finally, the Generalized Impulse Response Function framework was employed to test the direction of the casuality between trade openness policies and the dependent variable on both model beyond the selected time period. The finding indicates that the hypothesis of Export Led Growth and Import-Led Growth have been supported in the economic model, and only the Import-Led Growth have been supported in the economic model, and only the Import-Led Growth hypothesis proposition is not held in the agricultural model. The results conclude that there is a long-term cointegrating relationship between the series as predicted by economic theory. Importantly, the effect of a trade liberalization on the merchandise import was negative and insignificant in the short run, suggesting that the liberalization policies cannot play a helpful role for the merchandise import.