Dynamic effects of trade and output volatility on the trade-growth nexus: Evidence from Singapore
AbstractPurpose – This paper seeks to revisit the highly debated trade-growth hypothesis by considering the effects of trade and output volatility on the relationship between trade and economic growth. Design/methodology/approach – The relationship is modeled by testing for the existence of output and trade (export and imports separately) using the conditional variances of the variables and then specifying an autoregressive conditional heteroskedastic (ARCH) process in a vector error correction model. Findings – Using Singapore as a case study, the paper finds the two-way relationship between export growth and trade-adjusted GDP growth is robust even after controlling for the effects of income and export volatility. In addition, neither trade nor GDP volatility bears any impact on the bi-directional causality between imports and unadjusted GDP growth thereby highlighting the crucial role of imports as intermediate inputs and embodying foreign technology in promoting economic growth. There is also evidence that output volatility impedes output and trade growth, while trade volatility exerts a negative influence on the trade-adjusted income growth. Practical implications – Ignoring the presence of trade and output volatility in modeling the trade-growth relationship provides biased empirical results which have serious implications for trade-oriented growth strategies that policy makers cannot afford to ignore. Originality/value – This is the first attempt to explicitly model output, export and import volatility in empirically testing the trade-growth hypothesis. Second, the robustness of the hypothesis is also tested by considering GDP and non-trade GDP as it has been argued that use of GDP may lead to the problems of simultaneity and specification bias since exports and imports are themselves a component of GDP.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Emerald Group Publishing in its journal Journal of Economic Studies.
Volume (Year): 37 (2010)
Issue (Month): 3 (September)
Contact details of provider:
Web page: http://www.emeraldinsight.com
Postal: Emerald Group Publishing, Howard House, Wagon Lane, Bingley, BD16 1WA, UK
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ayhan Kose & Marco E. Terrones & Eswar Prasad, 2004.
"How do trade and financial integration affect the relationship between growth and volatility?,"
Federal Reserve Bank of San Francisco, issue Jun.
- Kose, M. Ayhan & Prasad, Eswar S. & Terrones, Marco E., 2006. "How do trade and financial integration affect the relationship between growth and volatility?," Journal of International Economics, Elsevier, vol. 69(1), pages 176-202, June.
- M. Ayhan Kose & Eswar S. Prasad & Marco E. Terrones, 2004. "How do trade and financial integration affect the relationship between growth and volatility," Working Paper Series 2004-29, Federal Reserve Bank of San Francisco.
- Eswar Prasad & Marco Terrones & M. Ayhan Kose, 2005. "How Do Trade and Financial Integration Affect the Relationship Between Growth and Volatility?," IMF Working Papers 05/19, International Monetary Fund.
- Kose, M. Ayhan & Prasad, Eswar & Terrones, Marco E., 2006. "How Do Trade and Financial Integration Affect the Relationship between Growth and Volatility?," IZA Discussion Papers 2252, Institute for the Study of Labor (IZA).
- Martin, Philippe & Ann Rogers, Carol, 2000.
"Long-term growth and short-term economic instability,"
European Economic Review,
Elsevier, vol. 44(2), pages 359-381, February.
- Martin, Philippe & Rogers, Carol Ann, 1995. "Long-Term Growth and Short-Term Economic Instability," CEPR Discussion Papers 1281, C.E.P.R. Discussion Papers.
- MacKinnon, James G & Haug, Alfred A & Michelis, Leo, 1999.
"Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration,"
Journal of Applied Econometrics,
John Wiley & Sons, Ltd., vol. 14(5), pages 563-77, Sept.-Oct.
- Mackinnon, J.G. & Haug, A.A. & Michelis, L., 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," G.R.E.Q.A.M. 96a09, Universite Aix-Marseille III.
- James G. MacKinnon & Alfred A. Haug & Leo Michelis, 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Working Papers 1996_07, York University, Department of Economics.
- David Greenaway & David Sapsford, .
"What does Liberalisation do for Exports and Growth?,"
ec4/94, Department of Economics, University of Lancaster.
- David Greenaway & David Sapsford, 1994. "What does liberalisation do for exports and growth?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(1), pages 152-174, March.
- Subrata Ghatak & Chris Milner & Utku Utkulu, 1997. "Exports, export composition and growth : cointegration and causality evidence for Malaysia," Applied Economics, Taylor & Francis Journals, vol. 29(2), pages 213-223.
- Ólan T. Henry & Nilss Olekalns, 2002.
"The Effect of Recessions on the Relationship between Output Variability and Growth,"
Southern Economic Journal,
Southern Economic Association, vol. 68(3), pages 683-692, January.
- Henry, O.T. & Olekalns, N., 2000. "The Effect of Recessions on the Relationship between Output Variability and Growth," Department of Economics - Working Papers Series 745, The University of Melbourne.
- Balassa, Bela, 1978. "Exports and economic growth : Further evidence," Journal of Development Economics, Elsevier, vol. 5(2), pages 181-189, June.
- Hatemi-J, Abdulnasser, 2002. "Export performance and economic growth nexus in Japan: a bootstrap approach," Japan and the World Economy, Elsevier, vol. 14(1), pages 25-33, January.
- Mendoza, Enrique G., 1997. "Terms-of-trade uncertainty and economic growth," Journal of Development Economics, Elsevier, vol. 54(2), pages 323-356, December.
- Karras, Georgios & Song, Frank, 1996. "Sources of business-cycle volatility: An exploratory study on a sample of OECD countries," Journal of Macroeconomics, Elsevier, vol. 18(4), pages 621-637.
- Jim Love & Ramesh Chandra, 2004. "Testing Export-Led Growth in India, Pakistan and Sri Lanka Using a Multivariate Framework," Manchester School, University of Manchester, vol. 72(4), pages 483-496, 07.
- Neil Dias Karunaratne, 1996. "Growth and trade dynamics under regime shifts in Australia," Journal of Economic Studies, Emerald Group Publishing, vol. 23(2), pages 55-69, May.
- Kose, M. Ayhan, 2002. "Explaining business cycles in small open economies: 'How much do world prices matter?'," Journal of International Economics, Elsevier, vol. 56(2), pages 299-327, March.
- Muhammed Islam, 1998. "Export expansion and economic growth: testing for cointegration and causality," Applied Economics, Taylor & Francis Journals, vol. 30(3), pages 415-425.
- Nelson, Richard R & Winter, Sidney G, 1974. "Neoclassical vs. Evolutionary Theories of Economic Growth: Critique and Prospectus," Economic Journal, Royal Economic Society, vol. 84(336), pages 886-905, December.
- Broda, Christian, 2004. "Terms of trade and exchange rate regimes in developing countries," Journal of International Economics, Elsevier, vol. 63(1), pages 31-58, May.
- Garey Ramey & Valerie A. Ramey, 1991. "Technology Commitment and the Cost of Economic Fluctuations," NBER Working Papers 3755, National Bureau of Economic Research, Inc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Virginia Chapman).
If references are entirely missing, you can add them using this form.