A study of the dynamic and causal relationship between foreign trade and international reserves in the Libyan economy

Abstract

This study aims to clarify the relationship between the components of foreign trade and international reserves in the Libyan economy, by building a standard model using annual data during the period (1966-2010). "Gregory and Hansen" between the variables under study, and their results showed that there is no long-term complementary relationship, and then the "Model Vector Autoregression" model was used. This study concluded, through the results of estimating the "VAR" model equations in the short term, that there is a positive relationship between total exports and the balance of international reserves, while total imports negatively affect the balance of international reserves, according to the test of causality with frequency "Breitung-Candelon, 2006". That there is a one-way causal relationship of total exports towards international reserves and imports in the long and short terms, just as there is a unidirectional causal relationship stemming from total exports to total imports in the short term only.