The Influence of Political Climate in North Macedonia and Greece on the Bilateral Trade Flow

Abstract

North Macedonia and Greece have experienced fraught diplomatic relations since the independence of Macedonia in 1991, with Greece objecting to Macedonia’s use of the name. As neighbouring countries, the geographical proximity makes them good trading partners. This study aims to answer the question whether the political ideology of the ruling parties in both countries contributed to the increase or decrease in the bilateral trade flows. Using a political index which places all ruling coalitions from 1991 to 2022 on a spectrum from fully left-wing to fully right-wing, the study uses a panel data approach, with the dependent variables being total trade volume, imports, and exports. The study finds that the political leanings of the governments impacted imports – the countries imported more from each other under a rightwing rule. The results are further proven when conducting a placebo test between Bulgaria and Greece as a dyad with amicable political relations where no impact was found on trade by ideology.