Trade Policy and Its Effects on the Libyan Economy

Abstract

Trade policy is considered one of the most vital economic policies for any country, whether developed or developing. It holds particular significance for the Libyan economy due to its positive impacts on various macroeconomic and microeconomic variables, including economic growth, employment, and investment. Consequently, in alignment with Libyan accession to the World Trade Organization (WTO), Libya has implemented numerous trade policy reforms aimed at trade liberalization. These reforms included reducing state monopolies on commodity imports, and limiting import bans. Accordingly, this research examined the impact of trade policy on economic growth in Libya during the period (1990–2024), using a Multiple Linear Regression model, utilizing the Economic Growth Rate as the dependent variable. The model incorporates several independent variables related to trade liberalization, namely: Trade Openness (the sum of exports and imports as a percentage of GDP), representing trade freedom policy, and a Trade Freedom Index (a dummy variable representing the years before and after Libya’s WTO accession process). Additionally, the study includes other independent variables influencing economic growth: Net Foreign Direct Investment (FDI) and Domestic Investment (Gross Fixed Capital Formation) as a percentage of GDP. The findings of the research indicate a significant positive impact of trade liberalization on economic growth in Libya. Therefore, the study recommends the formulation and implementation of policies that further enhance trade openness and promote trade liberalization within the Libyan economy.