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Direct and Indirect Causality Between Exports and Economic Output for Bangladesh and Sri Lanka: Horizon Matters

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Abstract

The extensive body of research that examines for (Granger, 1969) causality from exports to output for developing countries, including Bangladesh and Sri Lanka, using vector autoregressions and/or vector error correction models, is limited in only examining for one-period ahead or direct causality; the exception is in bivariate systems. This (usually unrecognized) focus on one-period causality in multivariate systems has often led to conclusions that exports do not Granger-cause economic output. We show that moving to Granger-causality at longer horizons, in a commonly used multivariate system, leads to bidirectional causality between exports and output, even when there is not one-period causality; the longer horizon causality arises indirectly through one or more of the auxiliary variables.

Suggested Citation

  • Judith A. Clarke & Mukesh Ralhan, 2005. "Direct and Indirect Causality Between Exports and Economic Output for Bangladesh and Sri Lanka: Horizon Matters," Econometrics Working Papers 0512, Department of Economics, University of Victoria.
  • Handle: RePEc:vic:vicewp:0512
    Note: ISSN 1485-6441
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    References listed on IDEAS

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    Cited by:

    1. Patrick Withey, 2014. "Energy Use, Income and Carbon Dioxide Emissions: Direct and Multi-Horizon Causality in Canada," International Journal of Energy Economics and Policy, Econjournals, vol. 4(2), pages 178-188.
    2. Jouini, Jamel, 2015. "Economic growth and remittances in Tunisia: Bi-directional causal links," Journal of Policy Modeling, Elsevier, vol. 37(2), pages 355-373.
    3. Akmal, Muhammad Shahbaz & Ahmad, Khalil & Ali, Muhammad, 2009. "Exports-Led Growth Hypothesis in Pakistan: Further Evidence," MPRA Paper 16043, University Library of Munich, Germany.
    4. Muhammad Shahbaz & Pervaz Azim & Khalil Ahmad, 2011. "Exports-Led Growth Hypothesis in Pakistan: Further Evidence," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 1(3), pages 182-197, September.
    5. Chakraborty, Chandana & Nunnenkamp, Peter, 2008. "Economic Reforms, FDI, and Economic Growth in India: A Sector Level Analysis," World Development, Elsevier, vol. 36(7), pages 1192-1212, July.
    6. Najibullah, Syed & Masih, Mansur, 2015. "Remittances and economic growth nexus: Do financial development and investment act as transmission channels? An ARDL bounds approach," MPRA Paper 65837, University Library of Munich, Germany.

    More about this item

    Keywords

    Economic growth; Granger causality; export-led growth; vector autoregressions;

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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