Analysis of Afghanistan's Economic Growth Response from The Economic Growth of Selected Neighboring countries

اقتصاد و توسعه منطقه ای

Article 5, Volume 28, Issue 21, October 2021, Pages 103-138   

Document Type: Research article

DOI: 10.22067/erd.2022.18776.0

Authors

nader mehrgan¹; Mohammadyusoaf khashee^{* 2}

¹Professor, of Economics, Boali Sina University

²M.A of Economics-Islamic Relations, Department of Social and Behavioral Sciences, Ahl Al-Bayt International University

Abstract

Extended abstract                                                                                                                                                                 
1- INTRODUCTION
In today's world, economic growth and development is more of a regional phenomenon than a national one. Countries, especially neighboring countries such as Europe or Southeast Asia, grow together; Because the proximity of countries in a region, due to shorter distances and reduced transportation costs on the one hand, and other commonalities such as culture, language, religion, etc., on the other hand, can achieve different economic integration for countries around the world. And made them more interested in economic and trade cooperation. Trade is the starting point of this economic cooperation. When a country's economy grows, an economic overflow occurs, and when an economic overflow is created, the economies of the surrounding countries practically change.
As Afghanistan is a drug producer and a hub for smuggled goods, Afghanistan's underground economy and war have transformed the legal economy throughout the region. This underground economy has led to the financing of terrorist groups in this country. Thus, lasting peace in Afghanistan requires not only political agreement, but also the transformation of the regional economy. Therefore, this study tries to measure the impact of economic growth of Afghanistan's neighbors and most important business partners on its economic growth by using annual GDP data (2002-2007) and self-regression model (VAR) and identify which one of the neighboring countries, it has the greatest impact on the economic growth of Afghanistan, according to which, through tariff policies and the expansion of trade, to provide the basis for further economic growth for the people of Afghanistan.
2- THEORETICAL FRAMEWORK
Many economic thinkers believe that a country's economic situation is not only influenced by its economic performance and behavior; It is also influenced by the performance of neighboring countries. Ignoring these relationships and ignoring spatial factors can have very negative effects on a country's performance. Because in international trade, spatial dependence can be justified in the course of trade through the overflow effects of neighboring countries. In such a way that some structural changes in the trade flow of a region affect the trade flow of the neighboring country. Because the structural changes that occur in a country, affect the flow of trade in that country and will also affect the flow of trade of geographical neighbors. Thus, in the real world, when a country's expenditures and incomes change, that change is transmitted to other countries through a change in that country's imports. When reactions occur in other countries, feedback is generated in the original country. Experience has also shown that the countries of the world are dependent on macroeconomic activity, and the income level of one country is positively dependent on the income level of other countries. Therefore, Afghanistan's economic growth is also subject to the economic growth of other countries. This was also seen in the global economic downturn that began in 2007-2008. When a boom or bust occurs in one country, it returns to the original country after being transferred to other countries.
3- METHODOLOGY
This research is performed by using annual GDP data (2017-2002) and self-regression vector model (VAR); Because contemporaneous equation models are based on an approach that assumes some variables are endogenous and some are exogenous. Defining variables into "endogenous" and "exogenous" may have theoretical underpinnings or may be a matter of taste. Even when it has theoretical support, doubts are raised about it, and the experimental results may contradict its theoretical foundations. However, the self-regression vector (VAR) model is used in cases where there is no certainty whether the variables are endogenous or exogenous.
4- RESULTS & DISCUSSION
The short-term results show that there is no causal relationship between Afghanistan's GDP growth and the economic growth of Tajikistan and Turkmenistan. But the relationship between Iran's and Afghanistan's economic growth is a one-way causal relationship on Iran's economic growth. Because Iran's exports to Afghanistan are often intermediate-capital goods that lead to production and economic growth; But Afghanistan's exports to Iran are mostly agricultural products, which are considered as consumer goods and have no effect on Iran's economic growth. The results also show that the relationship between the economic growth of Afghanistan and Pakistan is a causal two-way relationship. Because Afghanistan's exports to Pakistan are agricultural and livestock products. These goods are considered as consumer and final goods that due to the lack of necessary infrastructure for storage of agricultural products in Afghanistan, they are exported to Pakistan cheaply in the harvest season and re-enter Afghanistan in the winter. Pakistan exports to Afghanistan (compared to Iran) are mostly final and consumer goods. Hence, Iran's economic growth has a greater impact on Afghanistan's economic growth than Pakistan's. Long-term results based on the Johansson test also show that the growth of Afghanistan's GDP depends on the GDP growth of Iran and Pakistan.
The results obtained from the shock response functions for shocks to Afghanistan from Iran, Pakistan, Tajikistan and Turkmenistan show that shocks to Afghanistan from Iran, Tajikistan and Turkmenistan disappear over time and destabilize the Afghan economy. It is not possible; But the shock from Pakistan to Afghanistan is further destabilizing Afghanistan's economy. This is quite clear in the comparison between the graphs. The results of analysis of variance also show that in the short run, most of the changes in Afghanistan's GDP are self-sustaining. But in the long run, most of the changes are explained by Iran's GDP and the least by Tajikistan's GDP. In other words, Iran's economic growth compared to other countries has the greatest effect on Afghanistan's GDP growth.
5- CONCLUSIONS & SUGGESTIONS
The results of this study show that there is a positive and long-term relationship between the economic growth of Afghanistan and the countries of Iran and Pakistan. The results in the short run also show that there is a one-way causal relationship from Iran's GDP to Afghanistan's GDP. But there is no two-way causal relationship between Afghanistan and Iran GDP growth. There is also a two-way causal relationship between Afghanistan and Pakistan's GDP. While there is no causal relationship between the GDP of Afghanistan, Tajikistan and Turkmenistan. In addition, the long-term results show that Iran, Pakistan and Turkmenistan play a major role in explaining the fluctuations of Afghanistan's GDP, with Iran accounting for the largest share.
According to the results of the study, it is suggested that in order to ensure Afghanistan's economic growth, tariff barriers to the import of Iranian goods to Afghanistan should be removed or reduced, and in contrast, customs tariffs for other neighboring countries should be increased.

Keywords

Economic Convergence; Regional Growth; (VAR) model; Afghanistan Economy

Supplementary Files

chkide 21.pdf

References

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