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Causality between Exports and Economic Growth in South Africa: Evidence from Linear and Nonlinear Tests

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Author Info

  • Ahdi N. Ajmi

    ()
    (College of Science and Humanities in Slayel, Salman bin Abdulaziz University, Kingdom of Saudi Arabia)

  • Goodness C. Aye

    ()
    (Department of Economics, University of Pretoria)

  • Mehmet Balcilar

    ()
    (Department of Economics, Eastern Mediterranean University, Famagusta, North Cyprus,via Mersin 10, Turkey)

  • Rangan Gupta

    ()
    (Department of Economics, University of Pretoria)

Abstract

This paper investigates the dynamic causal link between exports and economic growth using both linear and nonlinear Granger causality tests. We use annual South African data on real exports and real gross domestic product from 1911-2011. The linear Granger causality result shows no evidence of significant causality between exports and GDP. The relevant VAR is unstable, which undermines our confidence in the causality result identified by linear Granger causality tests. Accordingly we turn to the nonlinear methods to evaluate Granger causality between exports and GDP. We use both Hiemstra and Jones (1994) and Diks and Panchenko (2005) nonlinear Granger causality tests. For the Hiemstra and Jones (1994) test, we find a unidirectional causality from GDP to exports. However, using the Diks and Panchenko (2005) test, we find evidence of significant bi-directional causality. These results highlight the risk of misleading conclusions based on the standard linear Granger causality tests which neither accounts for structural breaks nor uncover nonlinearities in the dynamic relationship between exports and GDP.

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Bibliographic Info

Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201339.

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Length: 18 pages
Date of creation: Aug 2013
Date of revision:
Handle: RePEc:pre:wpaper:201339

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Keywords: Exports; economic growth; causality; linear; nonlinear;

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References

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