Analyzing the Spillover Effects of Economic and Financial Growth of Developed and Developing Trading Partners on the Economy of Afghanistan: A Panel Vector Auto regression (PVAR) Model Approach

Document Type : Research Paper

Authors

1 Ph.D. Candidate in Financial Economics, Department of Economics, University of Yazd, Yazd, Iran

2 Professor of Economics, Department of Economics, Yazd University, Yazd, IRAN

3 Professor of Economics, Department of Economics, Yazd University, yazd, Iran

Abstract

The importance of trade partners in the economic growth of countries is central in international economics literature. Mechanisms exist through which economic and financial spillovers affect one another. Trade spillovers and exchange rate fluctuations are important indirect channels influencing partners' growth and dynamism. This research aims to investigate the impact of economic and financial spillovers from developed and developing countries on Afghanistan's economic growth during the period 2000–2021. For this purpose, data related to per capita GDP, exports of goods and services, and the exchange rates of Afghanistan's selected trade partners—in two groups, developed countries (United States, Japan, and Germany) and developing countries (China, Malaysia, and Russia)—were analyzed using the Panel Vector Auto regression (PVAR) model and STATA software. The findings indicate that Afghanistan's economic structure is significantly affected by the economic and financial developments of its trade partners. The results of the Granger causality test show that, in the short term, Afghanistan's economic growth significantly depends on the economic and financial growth of developed countries (United States, Japan, and Germany) and some developing countries (China and Malaysia). This impact is mainly transmitted through the trade channel, especially imports of capital and intermediate goods, and foreign aid. Additionally, the results of variance decomposition in the long run indicate that the growth of economic and financial variables in China, compared to other developed and developing countries, has the largest share in explaining the growth of economic and financial variables in Afghanistan.

Keywords

International Journal of Business and Development Studies
Volume 18, Issue 1
March 2026
Pages 99-122

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