Vector error correction model assessing the impact of consumption, investment and export on import on Bulgarian economy

Abstract

In 2018 Bulgaria was the number 74 economy in the world in terms of GDP (constant 2011 international USD), the number 63 in total exports, the number 60 in total imports, and the number 47 most complex economy according to the Economic Complexity Index (ECI). Given the importance of imports for Bulgaria's economic development, and the ensuing implications, the central aim of this paper is to examine the dependence of imports on consumption, investment and exports in Bulgaria, using time series data for the period 2004-2018. This study examines the dependence of Bulgarian imports, using vector error correction model (VECM) and to examined the causal relationships among the four factors on the obtained model. The results indicated that, no matter in the short term or long term, consumption and export fluctuation is the reason why import change, while the investment fluctuation is not the reason for the growth of import. The consumption and export impact will produce great influence on import in the short term, but, in the long term, the influence will tend to be gentle.