THE ROLE OF TRADE WITH THE EU IN LIBYAN ECONOMY DEVELOPMENT

The paper is based on an economic analysis of the Libya’s foreign trade during the period 1970–2006, with special reference to the trade process between Libya and the EU. In addition, the paper investigates the process of adjustment of Libyan imports from the EU, in the level of domestic economic activities (real Inco me), the consumer price index (CPI), and the exchange rates of the Libyan dinar. The aim is to provide estimates of the aggregate demand of Libya’s imports from the EU over the period, applying standard econometrics techniques complemented by appropriate diagnostic tests based on recent and by now widely used dynamic modeling and cointegration techniques. As well as the paper tends to estimate a long run of the independent variables elasticity stated above for Libya’s imports from the EU. The findings suggest more economic cooperation through bilateral relations, improving the investment environment in the Libyan market and supporting further economic cooperation through the Euro-Mediterranean Process and suggest the need for trade agreement with the EU.