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Exports, Growth and Causality:An Application of Co-Integration and Error-correction Modelling

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  • Khan, Ashfaque Hasan
  • Hasan, Lubna
  • Malik, Afia

Abstract

This paper investigates the direction of causation between exports growth and economic growth. This issue has been widely investigated in the past in the context of the suitability of export promotion versus import substitution as development strategies. The traditional practice has been to utilise the Granger causality test to examine the direction of causality. Recent developments in econometric techniques have highlighted at least two shortcomings in the application of the standard Granger causality test. These include the stationary properties of the series and the co-integration of variables included in the analysis. The present paper, while investigating the direction of causation between exports growth and economic growth and using the Granger causality test, has taken into account these two shortcomings. The paper finds a stable, long-run two-way relationship between exports (as well as manufactured exports) and output, but a one- way stable relationship between output and primary exports. Furthermore, the paper also finds a bi-directional causation between exports (both primary and manufactured) growth and economic growth. Based on these findings, it is recommended that export promotion policy with a major emphasis on manufactured exports must be vigorously pursued to achieve a higher rate of economic growth.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 7352.

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Date of creation: 1995
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Handle: RePEc:pra:mprapa:7352

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Keywords: Exports; Growth;

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  1. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, Elsevier, vol. 39(1-2), pages 199-211.
  2. Michaely, Michael, 1977. "Exports and growth : An empirical investigation," Journal of Development Economics, Elsevier, Elsevier, vol. 4(1), pages 49-53, February.
  3. Fosu, Augustin Kwasi, 1990. "Exports and economic growth: The African case," World Development, Elsevier, Elsevier, vol. 18(6), pages 831-835, June.
  4. Balassa, Bela, 1978. "Exports and economic growth : Further evidence," Journal of Development Economics, Elsevier, Elsevier, vol. 5(2), pages 181-189, June.
  5. Kavoussi, Rostam M., 1984. "Export expansion and economic growth : Further empirical evidence," Journal of Development Economics, Elsevier, Elsevier, vol. 14(1), pages 241-250.
  6. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, Elsevier, vol. 12(1-2), pages 59-73.
  7. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, Econometric Society, vol. 37(3), pages 424-38, July.
  8. Jung, Woo S. & Marshall, Peyton J., 1985. "Exports, growth and causality in developing countries," Journal of Development Economics, Elsevier, Elsevier, vol. 18(1), pages 1-12.
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Cited by:
  1. Mohammad Akbar & Zareen F. Naqvi, 2001. "External Market Conditions, Competitiveness, Diversification, and Pakistan’s Export Performance," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 40(4), pages 871-884.
  2. Muhammad Arshad Khan & Abdul Qayyum, 2007. "Trade Liberalisation, Financial Development and Economic Growth," Trade Working Papers 22204, East Asian Bureau of Economic Research.
  3. Nasim Shah Shirazi & Turkhan Ali Abdul Manap, 2004. "Exports and Economic Growth Nexus: The Case of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 43(4), pages 563-581.
  4. Ashfaque H. Khan, 1998. "The Experience of Trade Liberalisation in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 37(4), pages 661-685.
  5. Mohsin Hasnain Ahmad & Shaista Alam & Mohammad Sabihuddin Butt, 2003. "Foreign Direct Investment, Exports, and Domestic Output in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 42(4), pages 715-723.
  6. Saima Siddiqui & Sameena Zehra & Sadia Majeed & Muhammad Sabihuddin Butt, 2008. "Export-Led Growth Hypothesis in Pakistan: A Reinvestigation Using the Bounds Test," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, Department of Economics, The Lahore School of Economics, vol. 13(2), pages 59-80, Jul-Dec.
  7. Akmal, Muhammad Shahbaz & Ahmad, Khalil & Ali, Muhammad, 2009. "Exports-Led Growth Hypothesis in Pakistan: Further Evidence," MPRA Paper 16043, University Library of Munich, Germany.
  8. Musleh-Ud Din, 2004. "Exports, Imports, and Economic Growth in South Asia: Evidence Using a Multivariate Time-series Framework," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 43(2), pages 105-124.
  9. Qazi Masood Ahmed & Mohammad Sabihuddin Butt & Shaista Alam, 2000. "Economic Growth, Export, and External Debt Causality: The Case of Asian Countries," The Pakistan Development Review, Pakistan Institute of Development Economics, Pakistan Institute of Development Economics, vol. 39(4), pages 591-608.
  10. Aurangzeb, 2003. "Trade, Investment and Growth Nexus in Pakistan: An Application of Cointegration and Multivariate Causality Test," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, Department of Economics, The Lahore School of Economics, vol. 8(1), pages 119-137, Jan-June.
  11. Muhammad AFZAl, 2012. "Do Structural Transformation And Trade Liberalisation Cause Economic Growth In Pakistan?," Applied Econometrics and International Development, Euro-American Association of Economic Development, Euro-American Association of Economic Development, vol. 12(1).

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