The Impact of Exports, Imports, and the Exchange Rate on Algeria’s Economic Growth

This study examines the impact of foreign trade on economic growth in Algeria over the period 1980-2023. The main objective is to analyze the influence of exports, imports, and the exchange rate on economic growth to understand better the country’s trade dynamics and their implications for economic growth. The analysis is based on annual data from official sources such as the World Bank, the World Development Indicators, Algeria’s National Office of Statistics (ONS), and the Ministry of Finance. The methodology relies on a rigorous econometric approach based on time series analysis. First, the Augmented Dickey-Fuller (ADF) test is applied to examine the stationarity of the series and avoid spurious regression issues. Then, Johansen’s cointegration test is used to identify long-term links between the variables. Cointegration justifies estimating a VECM model, which analyzes short-term adjustments and long-term equilibrium dynamics. Additionally, a Granger causality test is conducted to determine the directional effects between foreign trade and economic growth. Finally, several diagnostic tests are performed to validate the robustness of the model, including tests for residual normality, autocorrelation, and model stability. The empirical results reveal contrasting effects. Imports positively impact economic growth in the medium term, fostering industrialization and improving local productive capacities through acquiring capital goods and technologies. In contrast, exports, primarily dominated by the hydrocarbon sector, show a limited and negative effect in the long term, highlighting the vulnerability of Algeria’s economic model to commodity price volatility. The exchange rate has a favourable influence on growth, particularly by facilitating the importation of strategic goods and enhancing the country’s attractiveness to foreign investors.