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Trade and Growth in the Pacific Islands - Empirical Evidence from the Bounds Test to Level Relationships and Granger Causality Tests

Author

Listed:
  • Katircioglu, Salih

    () (Department of Banking and Finance, Eastern Mediterranean University, P.O. Box 95, Famagusta, Northern Cyprus, Via Mersin 10, Turkey)

  • Eminer, Fehiman

    () (Department of Economics, Faculty of Economics and Administrative Sciences, Near East University, Nicosia, Northern Cyprus, Via Mersin 10, Turkey)

  • Aga, Mehmet

    () (Department of Economics, Faculty of Economics and Administrative Sciences, Near East University, Nicosia, Northern Cyprus, Via Mersin 10, Turkey)

  • Ozyigit, Ahmet

    () (Department of Economics, Faculty of Economics and Administrative Sciences, Near East University, Nicosia, Northern Cyprus, Via Mersin 10, Turkey)

Abstract

Although the relationship between international trade and economic growth has found a wide application area in the literature over the years, further attention is needed for small island economies. This study employs the bounds test for Level Relationships and Granger causality tests to investigate a long-run equilibrium relationship between international trade and real income growth, and the direction of causality among themselves in three selected Pacific Islands: Fiji, Papua New Guinea and Solomon Islands. Results reveal that a long run equilibrium relationship can be inferred between international trade and economic growth in the case of Fiji and Solomon Islands whereas economic growth is cointegrated only with exports of goods and services in Papua New Guinea. Granger causality test results show that there are bidirectional causality between exports and economic growth, and between exports and imports in Fiji Islands. Economic growth in Solomon Islands stimulates a growth in exports of goods and services, and exports stimulates a growth in imports of goods and services. No causal relationship has been obtained between international trade (both exports and imports) and economic growth in the case of Solomon Islands. The major finding of this study is that trade-led growth hypothesis cannot be inferred for the Pacific Islands.

Suggested Citation

  • Katircioglu, Salih & Eminer, Fehiman & Aga, Mehmet & Ozyigit, Ahmet, 2010. "Trade and Growth in the Pacific Islands - Empirical Evidence from the Bounds Test to Level Relationships and Granger Causality Tests," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 88-101, December.
  • Handle: RePEc:rjr:romjef:v::y:2010:i:4:p:88-101
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    References listed on IDEAS

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    1. Marin, Dalia, 1992. "Is the Export-Led.Growth Hypothesis Valid for Industrialized Countries?," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 678-688, November.
    2. Dickey, David A & Fuller, Wayne A, 1981. "Likelihood Ratio Statistics for Autoregressive Time Series with a Unit Root," Econometrica, Econometric Society, vol. 49(4), pages 1057-1072, June.
    3. Jacint Balaguer & Manuel Cantavella-Jorda, 2002. "Tourism as a long-run economic growth factor: the Spanish case," Applied Economics, Taylor & Francis Journals, vol. 34(7), pages 877-884.
    4. Paresh Kumar Narayan & Russell Smyth, 2004. "The relationship between the real exchange rate and balance of payments: empirical evidence for China from cointegration and causality testing," Applied Economics Letters, Taylor & Francis Journals, vol. 11(5), pages 287-291.
    5. Jordan Shan & Fiona Sun, 1998. "Export-led growth hypothesis for Australia: an empirical re-investigation," Applied Economics Letters, Taylor & Francis Journals, vol. 5(7), pages 423-428.
    6. Lokman Gunduz & Abdulnasser Hatemi-J, 2005. "Is the tourism-led growth hypothesis valid for Turkey?," Applied Economics Letters, Taylor & Francis Journals, vol. 12(8), pages 499-504.
    7. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    8. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-438, July.
    9. Paresh Kumar Narayan & Seema Narayan, 2005. "Are exports and imports cointegrated? Evidence from 22 least developed countries," Applied Economics Letters, Taylor & Francis Journals, vol. 12(6), pages 375-378.
    10. Salih Katircioglu, 2009. "Tourism, trade and growth: the case of Cyprus," Applied Economics, Taylor & Francis Journals, vol. 41(21), pages 2741-2750.
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    Citations

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    Cited by:

    1. Aleh Mazol, 2015. "Exchange Rate, Imports of Intermediate and Capital Goods and GDP Growth in Belarus," BEROC Working Paper Series 32, Belarusian Economic Research and Outreach Center (BEROC).
    2. Hye, Qazi Muhammad Adnan & Wizarat, Shahida & Lau, Wee-Yeap, 2013. "Trade-led growth hypothesis: An empirical analysis of South Asian countries," Economic Modelling, Elsevier, vol. 35(C), pages 654-660.
    3. Qazi Muhammad Adnan Hye, 2012. "Exports, imports and economic growth in China: an ARDL analysis," Journal of Chinese Economic and Foreign Trade Studies, Emerald Group Publishing, vol. 5(1), pages 42-55, February.

    More about this item

    Keywords

    economic growth; long-run equilibrium relationship; Granger causality test;

    JEL classification:

    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling

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