THE TWO-WAY CAUSALITY BETWEEN THE ECONOMIES OF POLAND AND UKRAINE: THE VAR/VEC MODEL
Abstract
The aim of this study is to analyze the relationship between economic growth and bilateral trade between Poland and Ukraine. The analysis is based on a Vector Autoregression model with error correction (VAR/VECM) using annual data for the period 2000-2023. In the first stage, unit root tests and the Johansen cointegration test were conducted, indicating the presence of long-run relationships among the analyzed variables. The estimation results suggest the existence of statistical relationships between the level of economic activity in both countries and the volume of their bilateral trade. The impulse response analysis and forecast error variance decomposition indicate that changes in economic activity in Poland affect the dynamics of Ukraine’s GDP, while the direct impact of changes in Ukraine’s GDP on the Polish economy remains relatively limited. The results also show that Ukraine’s exports to Poland are strongly associated with the level of demand in the Polish economy, while Ukraine’s imports from Poland exhibit a significant relationship with the dynamics of its exports. The obtained results point to an asymmetric pattern of economic interdepen-
dence between the analyzed countries, in which the Polish economy plays an important role in shaping the dynamics of bilateral trade and economic activity in Ukraine.
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