GROWTH

The Relationship Between Export Growth And Economic Growth

Table of Contents

Introduction3

Empirical results11

The Results of Regression15

General Overview15

Microanalysis15

Conclusions25

References27

Appendix30

The Relationship Between Export Growth And Economic Growth

Introduction

Economic theory suggests that export expansion contributes positively to economic growth through such means as facilitating the exploitation of economies of scale, and enhancing efficiency through increased competition (Bhagwati and Srinivasan, 1979; Krueger, 1980; Helpman and Krugeman, 1985). These arguments have been supplemented by the literature on endogenous growth theory. On this basis, exports increase long-run growth by allowing the economy to specialize in those sectors with scale economies that arise from research and development (R&D), human capital accumulation or learning by doing, (Romer, 1987; Rivera-Batiz and Romer, 1991; Grossman and Helpman, 1991; Krugman, 1991; Barro, 1991; Mankiw et al., 1992, Barro and Sala-I-Martin, 1993, Mankiw, 1995; Sachs and Warner, 1995). However, economic theory is rather ambiguous on whether exports cause growth, or are a result of growth. An analysis of Granger causality will help establish what these relationships are.

Large empirical works over the last 30 years have used a range of methodologies and a great variety of techniques, data sets, and country groups to empirically assess the export and growth relationship, and have yielded a wide variety of results. Consequently, the nature of the relationship between export and economic growth remains very much an open question, particularly in less-development countries (LDCs). Earlier studies, which use cross-country data, are criticized for taking positive correlations as evidence of causation without testing for the direction of causality.

Broadly speaking, the studies on the export-growth relationship can be categorized into those based on cross-country data, and those based on time series data. The main arguments however, against cross section data analysis are that, cross country studies implicitly impose or assume a common economic structure and similar production technology across different countries, which is most likely not true. This shortcoming is noted by Feder (1982) and Helleiner (1986), and empirically investigated by Dutt and Ghosh (1996) for 26 low-middle and high-income countries. They conclude that the causality structure between growth and exports is economy specific and attempts at generalizations are inappropriate.

Additional problems arise from the fact that exports, via the national accounting identity, are themselves a component of output. In fact, simultaneity is always a concern in an export-growth relationship. Yet, many studies fail to address this particular criticism of the empirical work on the export-growth relationship. The problem of autocorrelation arises in models, which employ any of the major components of output such as exports or government expenditures (or revenues) as the determinant of output growth (Greenaway and Sapsford, 1994; Love, 1994), This issue has also been raised and considered by Hwa (1988), Afxentiou and Serletis (1991), Sheehey (1990, 1992) and Frankel et al. (1996).

Finally, whilst the relationship between export and growth has been central to development economics, the impact of exports composition on growth has been investigated comparatively less than the relationship between exports and growth in general. With few exceptions (Ukpolo, 1994; Greenaway et ...