The Relationship Between Greek Exports and Foreign Income

Abstract

This paper assesses the effect of foreign economic activity on Greek exports based on both static and dynamic analysis. We employ data from 1995:I to 2016:IV and quantify the long-run foreign income elasticity of Greek exports. We establish a cointegration relationship and find, based on Dynamic OLS estimations, that the aggregate foreign income elasticity of Greek exports is above one and the price elasticity is positive. We reveal that economic growth in Turkey and in emerging markets such as the Balkans, North Africa and the Middle East have the greatest impact on Greek exports. The impact of the traditional European trading partners of Greece (Germany and Italy) are found to be positive but insignicant. Finally, the dynamic analysis shows a positive interaction between real income growth in Turkey and Greek export growth in the short-run horizon. A real depreciation of the Greek economy will lead to an increase in exports.