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

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

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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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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  1. Fosu, Augustin Kwasi, 1990. "Exports and economic growth: The African case," World Development, Elsevier, vol. 18(6), pages 831-835, June.
  2. Jung, Woo S. & Marshall, Peyton J., 1985. "Exports, growth and causality in developing countries," Journal of Development Economics, Elsevier, vol. 18(1), pages 1-12.
  3. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  4. Feder, Gershon, 1983. "On exports and economic growth," Journal of Development Economics, Elsevier, vol. 12(1-2), pages 59-73.
  5. Michaely, Michael, 1977. "Exports and growth : An empirical investigation," Journal of Development Economics, Elsevier, vol. 4(1), pages 49-53, February.
  6. Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
  7. Kavoussi, Rostam M., 1984. "Export expansion and economic growth : Further empirical evidence," Journal of Development Economics, Elsevier, vol. 14(1), pages 241-250.
  8. Balassa, Bela, 1978. "Exports and economic growth : Further evidence," Journal of Development Economics, Elsevier, vol. 5(2), pages 181-189, June.
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