Bilateral trade impact on GDP: A markov chain approach

Abstract

The target of the European Union is to increase the common welfare of the member states as an economic integrity by shifting the external trade from nonmembers to member countries. This paper aims to represent the goods and services transfer with bilateral trade as a Markov chain transition matrix. The trade shifts are evaluated by the changes at the transition matrices. Accordingly, the aggregate domestic production proportions of the EU members included Turkey and rest of the world are predicted by Markov chain under relevant assumptions. © EuroJournals Publishing, Inc. 2011.