Export and Economic Growth in Select South Asian Countries: Causality Analysis Based on Granger Test & VECM
DOI:
https://doi.org/10.17010/aijer/2015/v4i4/77668Keywords:
Exports
, Economic Growth, Cointegration, Causality, VECMC32
, F14, F43Paper Submission Date
, April 15, 2015, Paper sent back for Revision, June 19, Paper Acceptance Date, July 23, 2015.Abstract
Over the past thirty years, many developing countries have adopted export promotion as their development policy. The export-led growth approach encouraged countries to focus on production for exports. After the miraculous performance of the East and South East Asian countries, the South Asian countries also shifted their strategy in favour of export oriented policies. The present study analyzed the export-led growth hypothesis in select South Asian countries namely Bangladesh, India, Pakistan, and Sri Lanka by using unit root, cointegration, vector error correction model, and Granger causality test. Time series data for exports and imports of goods&services and gross domestic product (GDP) per capita were taken for the period from 1980-2012 from The World Bank's world development indicators. The study concluded that export-led growth hypothesis was valid for Bangladesh and Sri Lanka only in the long run. For India, the study found evidence of export-led growth hypothesis, particularly for the short run. No short run and long run relationship was found for Pakistan. The VECM results for imports and GDP per capita showed that imports significantly caused GDP per capita only in Bangladesh, but no long run causal relationship was found from GDP per capita to imports. The results of the Granger causality test do not show any causal relationship between imports and GDP per capita except for Pakistan, in case of which there is unidirectional causality from GDP per capita to imports.Downloads
Downloads
Published
How to Cite
Issue
Section
References
Abbas, S. (2012). Causality between exports and economic growth: Investigating suitable trade policy for Pakistan. Eurasian Journal of Business and Economics, 5 (10), 91-98.
Abou-Stait, F. (2005). Are exports the engine of economic growth? An application of cointegration and causality analysis for Egypt, 1977-2003. African Development Bank Economic Research Working Paper, 76. Retrieved from http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/00363566-EN-ERWP-76.PDF
Afzal, M., & Hussain, I. (2010). Export-led growth hypothesis: Evidence from Pakistan. Journal of Quantitative Economics, 8 (1), 130-147.
Akmal, M. S., Ahmad, K., & Ali, M. (2009). Exports-led growth hypothesis in Pakistan: Further evidence (MPRA Paper No. 16043). Retrieved from http://mpra.ub.uni-muenchen.de/16043/
Al Mamun, K. A., & Nath, H. K. (2005). Export-led growth in Bangladesh: A time series analysis. Applied Economic Letters,12 (6), 361-364.
Al-Yousif, Y. K. (1997). Exports and economic growth: Some empirical evidence from the Arab Gulf countries. Applied Economics, 29 (6), 693-697.
Al-Yousif, Y. K. (1999). On the role of exports in the economic growth of Malaysia: A multivariate analysis. International Economic Journal, 13, 67 - 75.
Anwer, M.S., & Sampath, R.K. (2000). Exports and economic growth. The Indian Economic Journal, 47 (3), 79-88.
Asteriou, D., & Hall, S.G. (2007). Applied econometrics: A modern approach using Eviews and Microfit (Revised Edition). Hampshire, New York : Palgrave Macmillan.
Bahmani-Oskooee, M., & Alse, J. (1993). Export growth and economic growth: An application of cointegration and error- correction modeling. The Journal of Developing Areas, 27 (4), 535-542.
Balassa, B. (1978). Exports and economic growth: Further evidence. Journal of Development Economics, 5 (2), 181-89.
Balassa, B. (1985). Exports, policy choices, and economic growth in developing countries after the 1973 oil shock. Journal of Development Economics, 4 (1),23-35.
Bhat, S. K. (1995). Export and economic growth in India. Artha Vijnana, 37 (4), 350-358.
Chandra, R. (2003). Re- investigating export- led growth in india using a multivariate cointegration framework. The Journal of Developing Areas, 37 (1),73-86.
Chandra, R., & Love, J. (2005). Testing export-led growth in Bangladesh in a multivariate VAR framework. Journal of Asian Economics,15 (6),1155-1168.
Devi, S. S. (2013). Export, economic growth and causality- A case for India. Journal of Global Economy, 9 (1), 21-27.
Dhawal, U., & Biswal, B. (1999). Re- examining export- led growth hypothesis: A multivariate cointegration analysis for India . Applied Economics, 31 (4), 525-530.
Dilrukshini, W.A. (2008). Is the export-led growth hypothesis valid for Sri Lanka ? A time-series analysis of export-led growth hypothesis. Central Bank of Sri Lanka, Staff Studies, 38 (1& 2),75-94.
Din, M. U. (2004). Exports, imports, and economic growth in South Asia: Evidence using a multivariate time-series framework. The Pakistan Development Review, 43 (2), 105-124.
Dodaro, S. (1993). Exports and growth: A reconsideration of causality. The Journal of Developing Areas, 27 (2), 227-244.
Dutt, S.D., & Ghosh, D. (1996). The export growth- economic growth nexus: A causality analysis. The Journal of Developing Areas, 30 (2),167-182.
Ekanayake, E.M. (1999). Exports and economic growth in Asian developing countries: Cointegration and error- correction models. Journal of Economic Development, 24 (2), 43-56.
Eusuf, M.A., & Ahmed, M. (2007). Causality between export and growth: Evidence from South Asian Countries. The Jahangir Nagar Economic Review , 19 (1), 73 -86.
Feder, G. (1982). Exports and economic growth. Journal of Development Economics, 12 (1), 59-73.
Felipe, J. (2012). Inclusive growth, full employment and structural change: Implications and policies for developing Asia (2nd ed.). London : Anthem Press.
Ghatak, S., & Price, S. W. (1997). Export composition and economic growth: Cointegration and causality evidence for India. Review of World Economics, 133 (3), 538-553.
Granger, C. W. (1969). Investigating causal relations by econometric models and cross-spectral methods. Econometrica: Journal of the Econometric Society, 37 (3), 424-438.
Granger, C.W. J., & Newbold, P. (1974). Spurious regression in econometrics. Journal of Econometrics, 2 (2), 111-120.
Greene, W. H. (2003). Econometric analysis (5th Edition). Upper Saddle River, NJ : Prentice Hall.
Gujarati, D. N., & Sangeetha (2010). Basic econometrics (4th Ed.). New Delhi : Tata McGraw Hill Education (India) Private Limited.
Gujarati, D.N., Porter, D.C., & Gunasekar, S. (2013). Basic econometrics (5th Ed.). New Delhi : Tata McGraw Hill Education (India) Private Limited.
Heller, P. S., & Porter, R. C. (1978). Exports and growth: An empirical re-investigation. Journal of Development Economics, 5 (2), 191-193. doi:10.1016/0304-3878(78)90007-X
Hossain, M. A., & Karunaratne, N. D. (2001). On export-led growth: Is manufacturing exports a new engine of growth for Bangladesh? (Discussion Paper No 297), pp. 1-29. Retrieved from http://espace.library.uq.edu.au/view/UQ:11066/DP297Dec01.pdf
Hye, Q. M. A., Wizarat, S., & Lau, W. Y. (2013). Trade-led growth hypothesis: An empirical analysis of South Asian countries. Economic Modelling, 35, 654-660. doi:10.1016/j.econmod.2013.07.040
Jain, R., & Singh, J. B. (2009). Trade pattern in SAARC countries: Emerging trends and issues. Reserve Bank of India Occasional Papers, 30 (3),73-117.
Kaur, A. (2012). Pattern of India's foreign trade in pre & post reform era: An empirical investigation. International Journal of Advancement in Research & Technology,1 (5),170-199.
Kaur, R. & Sidhu, A. S. (2012). Trade openness, exports and economic growth relationship in India: An econometric analysis. DIAS Technology Review, 8 (2), 43-53.
Kemal, A. R., Din, M., Qadir, U., Fernando, L., & Colombage, S.S. (2002). Exports and economic growth in South Asia. Retrieved from http://saneinetwork.net/Files/02_05.pdf
Khan, A. H., Khan, M., & Khan, M. T. (2012). The impact of trade liberalization on economic growth in Pakistan. Interdisciplinary Journal of Contemporary Research in Business, 3 (9), 700-711.
Khan, H.A. (2005). Assessing poverty impact of trade liberalization policies: A generic macroeconomic computable general equilibrium model for South Asia (Discussion Paper No. 22). Retrieved from https://openaccess.adb.org/bitstream/handle/11540/3610/2005.01.14.dp22.assessing.poverty.impact.pdf?sequence=1
Kwan, A.C.C., & Kwok, B. (1995), Exogeneity and the export-led growth hypothesis: The case of China. Southern Economic Journal, 61 (4), 1158-1166.
Lee, C. H., & Huang, B. N. (2002). The relationship between exports and economic growth in East Asian countries: A multivariate threshold autoregressive approach. Journal of Economic Development, 27 (2), 45-68.
Medina-Smith, E. J. (2001). Is the export-led growth hypothesis valid for developing countries? A case study of Costa Rica (Policy Issues in International Trade and Commodities, Study Series No. 7). Retrieved from http://unctad.org/en/Docs/itcdtab8_en.pdf
Michaely, M. (1977). Exports and growth: An empirical investigation. Journal of Development Economics, 4 (1), 49-53.
Ministry of Commerce and Industry, Government of India. (2015). India and world trade organization. Retrieved from http://commerce.nic.in/trade/international_trade_papers_next Detail.asp?id=53
Mishra, P. K. (2011).The dynamics of relationship between exports and economic growth in India. International Journal of Economic Sciences and Applied Research, 4 (2), 53-70.
Muhammad, S., Pervaz, A., & Ahmad, K. (2011). Exports- led growth hypothesis in Pakistan: Further evidence (MPRA Paper No. 33617). Retrieved from https://mpra.ub.uni-muenchen.de/33617/1/MPRA_paper_33617.pdf
Nandi, S., & Biswas, B. (1991). Export and economic growth in India: Empirical evidence. Indian Economic Journal, 38 (3), 53-59.
Nataraj, G., Sahoo, P., & Kamaiah, B. (2001). Export-led growth in India: What do the VARs reveal? Indian Journal of Economics, 82 (324),1-20.
Padhan, P. C. (2004). Export and economic growth: An empirical analysis for India. ArthaVijnana, 46 (1-2), 179-190.
Palley, T.I. (2003). Export- led growth: Evidence of developing country crowding out. Retrieved from http://www.thomaspalley.com/docs/articles/economic_development/crowding_out.pdf
Pandey, A. K. (2006). Export and economic growth in India: Causal interpretation (MPRA Paper No. 14670). Retrieved from https://mpra.ub.uni-muenchen.de/14670/1/MPRA_paper_14670.pdf
Parida, P., & Sahoo, P. (2007). Export-led growth in South Asia: A panel cointegration analysis. International Economic Journal, 21 (2), 155-175.
Paul, B.P. (2014). Testing export-led growth in Bangladesh: An ARDL bounds test approach. International Journal of Trade, Economics and Finance, 5 (1), 1-5.
Perera, N., & Varma, R. (2008). An empirical analysis of sustainability of trade deficit: Evidence from Sri Lanka. International Journal of Applied Econometrics and Quantitative Studies, 5 (1), 79-82.
Phillips, C.B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75 (2), 335-346.
Phillips, P. C. B.(1986). Understanding spurious regression in econometrics. Journal of Econometrics, 33 (3), 311-340.
Pradhan, N. C. (2010). Exports and economic growth: An examination of ELG hypothesis for India. Reserve Bank of India Occasional Papers, 31 (3), 35-66.
Ram, R. (1987). Exports and economic growth in developing countries: Evidence from time-series and cross-section data. Economic Development and Cultural Change, 36 (1), 51-72.
Ray, S. (2011). A causality analysis on the empirical nexus between export and economic growth: Evidence from India. International Affairs and Global Strategy, 1, 24-38.
Razzaque, A., Khondkar, B. H., Ahmed, N., & Mujeri, M. K. (2003). Trade liberalization and economic growth: Empirical evidence on Bangladesh. Bangladesh Institute of Development Studies, Focus Study No. 03. Retrieved from http://idl-bnc.idrc.ca/dspace/bitstream/10625/31979/1/118892.pdf
Shahbaz, M., Azim, P., & Ahmad, K. (2011). Exports-led growth hypothesis in Pakistan: Further evidence. Asian Economic and Financial Review, 1(3), 182 - 197.
Sharma, A., & Panagiotidis, T. (2003). An analysis of exports and growth in India: Some empirical evidence (1971-2001) (Sheffield Economic Research Paper Series, SERP Number: 2003004). Retrieved from http://eprints.whiterose.ac.uk/9883/1/SERP2003004.pdf
Shirazi, N.S., & Abdul Manap, T.A. (2005). Export-led growth hypothesis: Further econometric evidence from South Asia. The Developing Economies, XLIII-4,472-488.
Siddiqui, S., Zehra, S., Majeed, S., & Butt, M. S. (2008). Export-led growth hypothesis in Pakistan: A reinvestigation using the bounds test. Lahore Journal of Economics, 13 (2), 59-80.
Sims, C. A. (1972). Money, income, and causality. The American Economic Review, 62 (4), 540-552.
Sprout, R. V., & Weaver, J. H. (1993). Exports and economic growth in a simultaneous equations model. The Journal of Developing Areas, 28 (4), 289-306.
Stock, J. H., & Watson, M. W. (2005). Introduction to econometrics (Vol. 104). Boston: Addison Wesley.
Sultan, P. (2008). Trade, industry and economic growth in Bangladesh. Journal of Economic Cooperation, 29 (4),71-92.
Tahir, M., Khan, H., Israr, M., & Qahar, A. (2015). An analysis of export led growth hypothesis: Cointegration and causality evidence from Sri Lanka. Advances in Economics and Business, 3 (2),62-69, DOI: 10.13189/aeb.2015.030205
The World Bank. (n.d. a.). World development indicators, Online Database. Retrieved from http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators
The World Bank. (n.d. b.). Bangladesh overview. Retrieved from http://www.worldbank.org/ en/country/bangladesh/overview
Tyler, W. G. (1981). Growth and export expansion in developing countries: Some empirical evidence. Journal of Development Economics, 9 (1), 121-130.
Uddin, G.S., Khan, M. Z. S., & Ozturk, I. (2013). Export led growth revisited in Bangladesh: Evidence from structural break. Actual Problems of Economics, 144 (6), 460-469.
Velnampy, T., & Achchuthan, S. (2013). Export, import and economic growth: Evidence from Sri Lanka. Journal of Economics and Sustainable Development, 4 (9), 147-155.
World Trade Organization. (1995). Sri Lanka continues reforms but needs support from its main trading partners. World Trade Organization. Retrieved from https://www.wto.org/english/tratop_e/tpr_e/tp17_e.htm
Zulfiqar, K., & Kausar, R. (2012). Trade liberalization, exchange rate and export growth in Pakistan. Far East Journal of Psychology and Business, 9 (2), 32-47.
