Tests of Causality and Exogeneity between Exports and Economic Growth — The Case of Asian NICs

This chapter presents a detailed econometric investigation using Sims’ unidirectional exogeneity test and Granger’s causality test to detect the existence and the directions of causality between exports and GDP for the four rapidly developing Asian newly industrializing countries (NICs): Hong Kong, South Korea, Singapore, and Taiwan. In general, our analysis shows that the two tests did not yield the same causal implications for each country. The Sims’ test indicates a feedback relationship while the Granger’s test indicates no causal relation between the exports and GDP, except for Hong Kong where both tests indicate a unidirectional causality from GDP to exports without feedback. Thus, our results from Sims’ test strongly indicate that the rapid economic growth of the Asian NICs is not only achieved with the export promotion policy but also derived from the domestic growth of industries and import substitution.