Author(s):
1. Bojan Kresojević, Ekonomski fakultet Univerziteta u Banjoj Luci, Republic of Srpska, Bosnia and Herzegovina

Abstract:

In the paper is shown the model of economy where export is independent variable and constant.  System of linear equations makes possible to predict levels of GDP in Bosnia and Herzegovina for different values of average propensities of GDP’s components. This model is static, because it relates only for one year. Import and export have high impact on GDP in small opened economy like Bosnia and Herzegovina. Export is injection of domestic money in income circle which has multiplied effects. Multiplier depends of leakages as: import, savings and taxes. Model supposes that investment, government spending, savings and taxes are endogenous variables. This indicates that GDP is in function of export and values of average propensities of GDP’s components. Only exogenous leakage is import. Model is focused on consumption (C) as largest component of GDP by expenditure approach, although it is applicable on other components. Higher orientation on domestic products, by consumers, results with lower propensity to import, as worst leakage from income circle. That reflects on higher multiplier of export. Many international agreements are directed on elimination of tariffs, what has damaging effects on small economies. Only weapon against import in liberalism is free will of the people to buy domestic products. Model estimating is that decreasing of average propensity of import, in Bosnia and Herzegovina, by 1% causes increasing of GDP for 1,8% to 2,2%, This means that expenditure of 1 BAM on domestic consumption, beside import reflects on GDP approximately twice.

Thematic field:
Social sciences

Date of abstract submission:
10.10.2014.

Conference:
7. Studenti u susret nauci sa međunarodnim učešćem, StES2014