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Trade, investment and growth: nexus, analysis and prognosis

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  • Krishna, Kala
  • Ozyildirim, Ataman
  • Swanson, Norman R.

Abstract

This paper looks at the patterns of causation between income, export, import, and investment growth for 25 developing countries. Our approach differs from previous efforts in a number of ways. First, we examine each country individually in order to allow for complete heterogeneity and properly account for the stochastic trending properties of the data. Second, we apply novel model selection techniques which are based on in-sample goodness-of-fit criteria and ex-ante predictive ability criteria to identify the best model for each country. Finally, we propose a rather novel device based on simple contingency tables which allows us to assess whether our models are capable of accurately predicting turning points in GDP growth. We find that countries with high trade exposure fare poorly in this dimension and posit that the GDP growth in such countries is best modeled using an index of global business cycle conditions, in addition to the above variables. Overall, we find that in around two thirds of the countries examined, growth is best explained by exports and/or imports. Further, and in contrast to previous findings of bi-directional causality, around 70% of the countries exhibit uni-directional causality.
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  • Krishna, Kala & Ozyildirim, Ataman & Swanson, Norman R., 2003. "Trade, investment and growth: nexus, analysis and prognosis," Journal of Development Economics, Elsevier, vol. 70(2), pages 479-499, April.
  • Handle: RePEc:eee:deveco:v:70:y:2003:i:2:p:479-499
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    Cited by:

    1. Christine Mutz & Thomas Ziesemer, 2008. "Simultaneous estimation of income and price elasticities of export demand, scale economies and total factor productivity growth for Brazil," Applied Economics, Taylor & Francis Journals, vol. 40(22), pages 2921-2937.
    2. Weber, Enzo, 2009. "Common and uncommon sources of growth in Asia Pacific," Journal of the Japanese and International Economies, Elsevier, vol. 23(1), pages 20-36, March.
    3. Faridul Islam & Qazi Muhammad Adnan Hye & Muhammad Shahbaz, 2012. "Import-economic growth nexus: ARDL approach to cointegration," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 5(3), pages 194-214, September.
    4. repec:seg:012016:v:2:y:2017:i:3:p:13-53 is not listed on IDEAS
    5. Shandre Mugan Thangavelu & Gulasekaran Rajaguru, 2004. "Is there an export or import-led productivity growth in rapidly developing Asian countries? a multivariate VAR analysis," Applied Economics, Taylor & Francis Journals, vol. 36(10), pages 1083-1093.
    6. Emmanuel Nkoa ONGO & Andrew Wujung VUKENKENG, 2014. "Does gross capital formation matter for economic growth in the CEMAC sub-region?," EuroEconomica, Danubius University of Galati, issue 2(33), pages 79-88, November.
    7. Joao Ricardo Faria & Miguel León-Ledesma, 2003. "Cultural Heritage and Growth," Studies in Economics 0303, School of Economics, University of Kent.
    8. Judith A. Giles, 2000. "Testing for Two-Step Granger Noncausality in Trivariate VAR Models," Econometrics Working Papers 0008, Department of Economics, University of Victoria.
    9. Sayef Bakari, 2017. "The Three-Way Linkages Between Export, Import And Economic Growth: New Evidence From Tunisia," Journal of Smart Economic Growth, , vol. 2(3), pages 13-53, December.
    10. António Afonso & João Tovar Jalles, 2011. "Linking Investment and Fiscal Policies," Working Papers Department of Economics 2011/16, ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa.
    11. Riad Sultan, 2012. "An Econometric Study of Economic Growth, Energy and Exports in Mauritius: Implications for Trade and Climate Policy," International Journal of Energy Economics and Policy, Econjournals, vol. 2(4), pages 225-237.
    12. repec:bla:afrdev:v:29:y:2017:i:2:p:305-318 is not listed on IDEAS
    13. Luintel, Kul B. & Mavrotas, George, 2005. "Examining Private Investment Heterogeneity: Evidence from a Dynamic Panel," WIDER Working Paper Series DP2005/11, World Institute for Development Economic Research (UNU-WIDER).
    14. Pablo Acosta & Andrés Loza, 2005. "Short and long run determinants of private investment in Argentina," Journal of Applied Economics, Universidad del CEMA, vol. 8, pages 389-406, November.
    15. Herrerias, M.J. & Orts, Vicente, 2011. "Imports and growth in China," Economic Modelling, Elsevier, vol. 28(6), pages 2811-2819.

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    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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