The Determinants of Trade Creation between Germany and Austria in Automotive Sector of the European Union.
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Universiti Malaysia Sarawak (UNIMAS)
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This study investigates the macroeconomic determinants of trade creation between Austria and Germany in the automotive sector using panel data analysis. The empirical model incorporates key variables including GDP, population, exchange rate, inflation, interest rate, and unemployment from 1999 to 2023. Descriptive statistics indicate stable economic behaviour across variables, while the Jarque-Bera test confirms the normality of residuals. The Pooled Ordinary Least Squares (OLS) and Fixed Effects (FE) models were estimated, with both producing consistent results. However, the redundant fixed effects test suggests that the FE model does not significantly outperform the Pooled OLS, making the latter more appropriate for this analysis. GDP is found to have a significant positive impact on trade, while inflation and unemployment have negative effects. Diagnostic tests reveal no multicollinearity or serial correlation issues. Furthermore, Granger causality analysis shows that GDP and population significantly predict trade flows. Due to the limitations of the model structure, the Random Effects estimation, Hausman specification test, and Breusch–Pagan test could not be applied. These findings contribute to understanding the dynamics of bilateral trade in the EU and offer implications for policymakers aiming to enhance regional economic integration.