An Empirical Analysis of Trade and Economic Growth in Libya

ABSTRACT This research is an empirical analysis of trade led growth of Libya during 1963-2008. Overall objective of this research is to investigate the role of international trade on Libya’s economy through reviewing various phases of economic growth in Libya starting from 1963. During this period, Libyan economy has undergone various structural changes. Not only has oil been one of its main exporting commodities, but also earnings from this sector of the Libyan economy have been credited with high growth rates experienced in the country. The research comprise of five specific objectives of which four require empirical justification. The non-empirical objective of the research is to obtain a trade profile of Libya. The empirical objectives include the analysis of relationship between trade and economic growth of Libya with and without incorporating the role of trade partners and the development of import demand in Libya with and without incorporating expenditure component. Results of the research showed that Libya is significantly dependent on international trade with countries of European Union; however, feedback effect from these countries is low. Mostly, Libya depends on the trade partners to cover the import demand. Import demand of the country is determined via price level instead of the income of the country. The only expenditure in Libya out of household consumption, government consumption, and investment, investment has sing incant effect on the price level. Therefore, for Libya to receive tread led growth, the country should employ such policies that favour total investment