Papadopoulos Theodoros - 'The Exports-Growth Nexus. An Econometric Investigation for Greece.'

ΕΛΛΗΝΙΚΟ ΑΝΟΙΚΣΟ ΠΑΝΕΠΙ΢ΣΗΜΙΟ
΢ΥΟΛΗ ΚΟΙΝΩΝΙΚΩΝ ΕΠΙ΢ΣΗΜΩΝ
ΔΙΟΙΚΗ΢Η ΕΠΙΥΕΙΡΗ΢ΕΩΝ
ΔΙΠΛΩΜΑΣΙΚΗ ΕΡΓΑ΢ΙΑ
ΜΙΑ ΕΜΠΕΙΡΙΚΗ ΔΙΕΡΕΤΝΗ΢Η ΣΗ΢ ΢ΥΕ΢Η΢
ΕΞΑΓΩΓΩΝ & ΑΝΑΠΣΤΞΗ΢ ΓΙΑ ΣΗΝ
ΠΕΡΙΠΣΩ΢Η ΣΗ΢ ΕΛΛΗΝΙΚΗ΢ ΟΙΚΟΝΟΜΙΑ΢
Φνηηεηήο:
ΠΑΠΑΔΟΠΟΤΛΟ΢ ΘΕΟΔΩΡΟ΢
Επηβιέπσλ θαζεγεηήο:
ΚΩΝ΢ΣΑΝΣΙΝΟ΢ ΚΑΣΡΑΚΤΛΙΔΗ΢
ΠΑΣΡΑ
Μάϊος, 2014

“The Export-Growth Nexus. An Empirical Investigation for Greece”
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HELLENIC OPEN UNIVERSITY
FACULTY OF SOCIAL SCIENCES
MASTER IN BUSINESS ADMINISTRATION (MBA)
MASTER THESIS
THE EXPORTS-GROWTH NEXUS - AN EMPIRICAL
INVESTIGATION FOR GREECE
Student:
THEODOROS PAPADOPOULOS
Supervisor professor:
Dr. KONSTANTINOS KATRAKILIDIS
PATRA
May, 2014

2
CONTENTS
Page
Abstract in Greek………………………………………………………... 4
Abstract in English……………………………………………….............5
Acknowledgements………………………………………………………6
Chapter 1: Introduction………………………………………………...7
1.1 Statement of the problem & relative international experience in
getting to grips with it………………………………………………….…7
1.2 Purpose of the dissertation……………………………………………8
1.3 Limitations in methodology, data and theory………………………...9
1.4 Leg-work methodology……………………………………………10
1.5 Dissertation outline………………………………………………….10
Chapter 2: Literature Review………………………………………...11
2.1 Introduction…………………………………………………………11
2.2 Early studies……………………………………………………..….12
2.3 Studies elaborated on the decade of 1990……………………….….14
2.4 Studies elaborated on the decade of 2000……………………….….21
2.5 Recent studies………………………………………………………28
Chapter 3: Methodology………………………………………............42
3.1 The concept of stationarity-testing for unit roots…………………...42
3.1.1 Definition of stationarity……………………………………….....42
3.1.2 The Dickey-Fuller and Augmented Dickey-Fuller test………...…44
3.1.3 The Phillips-Perron test………………………………………...…47
3.1.4 The KPSS test…………………………………………………..…48
3.2 The concept of cointegration and relative testing procedures…...….49
3.2.1 Definition of cointegration………………………..………………49
3.2.2 Formulating an Error Correction Model (ECM)……………….....51
3.2.3 The Engle-Granger two-step method….…………..……………...54
3.2.5 The Engle and Yoo 3-step method………………...…………….. 55
3.2.4 The Johansen‟s system approach to cointegration testing……..….55
3.3 Granger causality and relative testing procedures…………………..60
3.3.1 Testing for Granger causality………………………………..……61
3.3.2 The Toda and Yamamoto approach………………………….........64
3.4 Model structural stability and relative testing procedures….……….65
3.4.1 Introducing dummies in order to test for structural brakes….……65
3.4.1 The Chow stability test……………………………………...…….67
3.4.2 The Bai-Perron multiple uknown breakpoint test…………………68
3.5 Reaction to exogenous shocks in the context of a VAR
framework…………………………………………………………….…70
3.5.1 Impulse Response Function (IRF)..…………………………….....71

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3.5.2 Forecast Error Variance Decomposition (FEVD)…………....…...71
Chapter 4: Data & Empirical Results…………………......................73
4.1 Data used in the empirical analysis…………………….…………...73
4.2 Testing for unit roots………………………………………..………75
4.2.1 Implementation of the Dickey-Fuller GLS (DF GLS) and
Augmented Dickey-Fuller (ADF) unit-root tests…….…….…………...75
4.2.2 Implementation of the Phillips-Perron unit-root test……………..78
4.2.3 Implementation of the KPSS unit-root test……………….………79
4.3 Unit root tests with structural breaks………………………………..81
4.3.1 Zivot-Andrews unit root test with an unknown structural break
applied to variable levels and first differences……….………………....81
4.3.2 Perron unit root test with a break at an unknown time applied to
variable levels and first differences……………….….…………...….....82
4.4 Testing for model structural stability………………………………..83
4.4.1 Implementation of the Bai-Perron multiple uknown break test..…83
4.4.2 Introducing dummies in order to test for structural stability….…..84
4.5 Testing for cointegration………………………………...………….85
4.5.1 Implementation of the Engle-Granger 2-step method………….....85
4.5.2 Implementation of Johansen‟s systems approach…………………89
4.6 Testing for Granger causality.………………………………………95
4.6.1 Specification of VAR models and determination of their optimal lag
length in the context of Granger causality testing………………………95
4.6.2 Testing for causality in the Granger sense……………………...…97
4.7 Reaction to exogenous shocks…………………………………..…102
4.7.1 Results from impulse response functions (IRFs)………………...103
4.7.2 Results from variance decomposition (VDCs)…………………..104
Chapter 5: Conclusion…………………………………......................106
5.1 Concluding remarks………………………………………………..106
5.2 Food for thought – future research………………………………...114
List of references……………………………………………………………..…116
Appendix A: Outputs from Regression Results………………………………...119
Appendix B: Outputs from Unit Root Test Results…………………………….123
Appendix C: Outputs from Structural Break Test Results……………………...150
Appendix D: Outputs from Engle-Granger 2-step method Results…………….160
Appendix E: Outputs from Johansen‟s Approach Test Results….......................166
Appendix F: Outputs from Granger Causality Test Results…………................178
Appendix G: Outputs from IRFs and VDCs……………………………………194

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Abstract in Greek
΢ηα πιαίζηα ηεο ηξέρνπζαο νηθνλνκηθήο θξίζεο, νη πξνβιεκαηηθέο ρώξεο ηεο
Επξσδώλεο – ζπκπεξηιακβαλνκέλεο ηεο Ειιάδαο – αληηκεηώπηζαλ παξαηεηακέλεο πεξηόδνπο
ιηηόηεηαο – πεξηνξηζηηθή δεκνζηνλνκηθή πνιηηηθή – ε νπνία απαηηήζεθε από ηηο πηζηώηξηεο
ρώξεο σο αληάιιαγκα ηεο πξνζσξηλήο παξνρήο ρξεκαηνδόηεζεο. Θεσξήζεθε όηη ε έκθαζε
ζηα κέηξα ιηηόηεηαο κε παξάιιειε πινπνίεζε δηαξζξσηηθώλ κεηαξξπζκίζεσλ ζα
κπνξνύζαλ λα επαλαθέξνπλ ηνλ ζηαζεξό βεκαηηζκό ησλ επηβαξπκέλσλ κε ρξένο ρσξώλ
νύησο ώζηε λα θαηαζηεί εθηθηή ε ελαξκόληζή ηνπο κε ηα θξηηήξηα ειιείκκαηνο θαη ρξένπο
πνπ πεξηέρνληαη ζηε ζπλζήθε ηνπ Μάαζηξηρη.
Δεδνκέλνπ όηη δελ έρεη εκπεηξηθά ηεθκεξησζεί ε επίδξαζε ηεο δεκνζηνλνκηθήο
πνιηηηθήο ζην έιιεηκκα ηνπ ηζνδπγίνπ ηξερνπζώλ ζπλαιιαγώλ θαη από ηε ζηηγκή πνπ ην
εξγαιείν ηεο άζθεζεο λνκηζκαηηθήο πνιηηηθήο έρεη πιήξσο εθρσξεζεί ζηελ Επξσπατθή
Κεληξηθή Σξάπεδα, κηα ελαιιαθηηθή ζηξαηεγηθή εμόδνπ από ηελ θξίζε πνπ ζα κπνξνύζαλ λα
πηνζεηήζνπλ νη πεξηθεξεηαθέο ρώξεο ηεο λνκηζκαηηθήο έλσζεο έγθεηηαη ζηελ αμηνπνίεζε ησλ
αληαγσληζηηθώλ ηνπο πιενλεθηεκάησλ θαη ζηελ εζηίαζε ζηελ παξαγσγή πξντόλησλ πξνο
εμαγσγή.
Η εμεηδίθεπζε θαη εζηίαζε ζηελ παξαγσγή πξντόλησλ πςειήο αμίαο γηα εμαγσγηθνύο
ζθνπνύο κπνξεί λα βειηηώζεη ηελ παξαγσγηθόηεηα – δηακέζνπ, επί παξαδείγκαηη, θαιύηεξεο
ηερλνγλσζίαο θαη πηνζέηεζεο βέιηηζησλ πξαθηηθώλ κεηαμύ άιισλ – θαη έηζη λα ιεηηνπξγήζεη
σο ππνθαηάζηαην ηεο λνκηζκαηηθήο πνιηηηθήο ζε όξνπο επλντθήο ππνηίκεζεο ηνπ
λνκίζκαηνο. Η ηειεπηαία, εληζρύνληαο ηηο εμαγσγέο, βειηηώλεη ην έιιεηκκα ηξερνπζώλ
ζπλαιιαγώλ θαη ακβιύλεη ηελ αλάγθε γηα πεξαηηέξσ δηεζλή δαλεηζκό, θαζηζηώληαο έηζη ην
δεκόζην ρξένο νινέλα θαη ρακειόηεξν θαη ζπλεπώο βηώζηκν.
΢ε απηή ηε δηαηξηβή ζα θαηαβιεζεί πξνζπάζεηα λα απνζαθεληζηεί ε ζρέζε κεηαμύ
εμαγσγώλ θαη αλάπηπμεο γηα ηελ Ειιεληθή νηθνλνκία. Γηα ην ζθνπό απηό ζα
επηζηξαηεύζνπκε εηήζηα ζηνηρεία γηα ηηο δπν απηέο κεηαβιεηέο πνπ εθηείλνληαη ζε έλα
δηάζηεκα 52 εηώλ. Ξεθηλώληαο κε ηνλ έιεγρν ζηαζηκόηεηαο ησλ ρξνλνινγηθώλ ζεηξώλ, ζα
πξνρσξήζνπκε ζηελ εμέηαζε ησλ ηδηνηήησλ ζπλνινθιήξσζήο ηνπο. Ο απώηεξνο ζθνπόο καο
είλαη ε θαηάξηηζε ελόο ππνδείγκαηνο δηόξζσζεο ιαζώλ ην νπνίν ζα ζπιιακβάλεη ηε
βξαρππξόζεζκε θαη καθξνπξόζεζκε επίδξαζε κεηαμύ ησλ κεηαβιεηώλ θαη ζε ζπλδπαζκό κε
ηνλ έιεγρν γηα θαηά Granger αηηηόηεηα ζα ππαγνξεύεη ηε ιήςε απόθαζεο ζηε ζπδήηεζε
ζρεηηθά κε ην εάλ νη εμαγσγέο κπνξνύλ λα θαηαζηνύλ έλα αλαπηπμηαθό όρεκα εμόδνπ από
ηελ θξίζε γηα ηελ Ειιεληθή Οηθνλνκία.

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Abstract in English
In the margin of the recent economic crisis, troubled Eurozone countries –
Greece included - experienced a protracted period of austerity – contractionary fiscal
policy, which creditor countries required as a sine qua non for the permanent
provision of financing. It was assumed that focus on austerity measures along with
structural reforms could help restore debt-ridden countries on a sound footing in order
to allow compliance with debt and deficit criteria foreseen in the Maastricht Treaty.
Since fiscal policy has not been empirically verified to affect the current
account deficit and insofar as the tool of monetary policy exertion has been fully
ceded to the ECB, an alternative crisis-exit strategy for peripheral countries would be
to harness comparative advantages and focus on the production of innovative goods
for export valued considerably on international markets. The notion of export-led
growth posits that income growth can be attained through exports.
Specialization and focus on the production of high-end products appropriated
for export purposes can improve productivity – through for instance increased
competences, better know-how and adoption of best practices inter alia – and thus act
as a substitute for monetary policy in terms of propitious currency devaluation. The
latter, through reinforcing exports, ameliorates the current account deficit and blunts
the need for further international borrowing, thereby rendering the public debt
increasingly lower and therefore sustainable.
Ιn the current study we will attempt to shed light on the relationship between
exports and growth for the case of the Greek economy. For that purpose we will
employ annual time series data pertaining to these two variables that cover a period of
52 years. Starting from probing the order of integration of series under consideration,
we will then examine their cointegrating properties. The ultimate goal is to formulate
an Error Correction Model (ECM) potent to capture the short and long run dynamics
between Greek exports and Greek GDP growth which along with the test for Granger
causality will navigate the decision-making process on the context of the debate on
whether exports can serve as a crisis-exit growth vehicle for Greece.

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Acknowledgments
I would like to express my sincere gratitude to my supervisor Prof. Dr Katrakylidis
Konstantinos for his tutoring, guidance, supervision and patience throughout the
elaboration of the current thesis. At the same time I would like to express my deep
appreciation for Prof. Dr. Alexios Lazaridis who‟s tutoring along with Prof. Dr
Katrakylidis‟ constituted a prime but crucial motivation for me to getting acquainted
with quantitative and statistical techniques and immerse in econometrics. Furthermore
I would like to attribute special thanks to a list of close friends who stood by my side
in dark and bright days through all of these years. Finally it is really impossible for
me to express adequate gratitude to my family at which I owe my existence, substance
and mindset. This thesis is dedicated to my father Iosif Papadopoulos, whom I lost at
11.03.2008.

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Chapter 1
Introduction
1.1 Statement of the problem & relative international experience
in getting to grips with it
Since the abdication in 1971 of fixed exchange rates and the gold standard that
were the pillars of the Bretton Woods system and the introduction of floating
exchange rate regimes, the attention of many researchers and scholars alike
interestingly shifted towards exports as an engine for income growth. The focus on
exports can be largely attributed to the post-Bretton-Woods-era acerbic desire of
nations worldwide to lift trade barriers and engage in international trade. The notion
of export-led growth rests on the premise that openness to foreign competition and
trade is beneficial for a country so long as exports are conducive to income growth.
The national income accounts identity for an open economy states that GDP
equals consumption plus investment plus government expenditure plus net exports
(NX). In the context of the export-led growth hypothesis only variables Y and NX are
of interest, therefore if long-run cointegration exists between the two time series, it
can be posited that exports may serve as an engine or a handmaiden of growth.
Research on the export-led growth hypothesis is conducted with an
overarching aim of discerning whether the country or countries under investigation
should grand seniority to export promotion or growth promotion policies or should
instead promote import substitution. In the context of empirically testing the exports-
growth nexus the following outcomes are possible: exports cause income/output
growth – through technological transformation and efficient allocation of resources
and overcoming of foreign exchange restrictions inter ales -, income/output growth
cause exports – through improved specialization and enhanced competence -, there is
a bi-directional causality between exports and growth, there is no causality between
the two constructs, some other ancillary variable is cointegrated with either exports or
growth or finally the leg-work generates no conclusion.
A considerable amount of contemporaneous empirical research has focused on
the examination of the export-led growth hypothesis. An initial classification of the
relative literature can be performed according to the nature of data employed. While a
first group of researchers considered time series, see for example Samsu SH (2008),
Cantavela-Jurda M & Balauger J (2009), Bishwal B & Dhawan U (1999), other

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boffins employed cross-section data, for example Williams C.L. & Giles J.A. (1999)
while a last ensemble of scholars took panel data into account, for example
Christopoulos D.K. & Reppas P.A. (2005), Awokuse T.O. (2006) and Mihai M. &
Tiwari A.K. (2011).
A second distinction of the relative literature can be effectuated as regards the
type of model employed. With respect to the latter, Mihai M & Tiwari & Tiwari A.K.
(2011) and Sun F. & Shan J (1998) among others considered a production function
where exports are a component of national income, Chandra R. & Love J. (2005),
Thornton J. (1996) besides others utilized a bivariate framework between exports and
income growth, whereas Metaxoglou K & Dritsakis N. (1998) and Martin J.M. (2010)
just to name a few, adopted a multivariate model where output growth and exports
interact with various other constructs.
As far as conclusions of the literature on the export-led growth premise are
concerned, findings are rather kaleidoscopic and far from conclusive. It is probably
rational and well-expected that country-specific circumstances lend country-unique
dimensions to the relationship between exports and income growth, something that is
distilled in the variety of findings across the relative leg-work. To that end, Awokuse
T.O. (2011), Love J. (1994), Bodman P.M. (1996) report evidence of export-led
growth, Dritsaki M. et al. (2004) conclude that another variable besides exports
begets growth, Lazslo K. (2004), Oskooee B.M, et al (2005), Vamvoukas G, Panas E.
(2010) testify evidence of growth-led exports, Samsu S.H. (2008) asserts that another
variable besides output growth engenders exports, Shin, Y.C, Jin J.C. (2006) explore a
bidirectional causality between income growth and exports and finally Williams C.L.,
Giles J.A., (1999) are inconclusive on the export-led growth nexus.
1.2 Purpose of the Dissertation
The purpose of this paper is to investigate the causal relationship between
exports and output growth for the case of the Greek economy within the framework of
stationarity, cointegration, vector autoregressive models, error correction models and
Granger causality. Testing for cointegration on the margin of the growth-export nexus
is tantamount to testing whether the two non-stationary variables move together in a
long run equilibrium relationship which is disturbed only by short-run deviations
accounted for by a stationary stochastic error. Furthermore, testing for causality in the
Granger sense corresponds to probing whether a causal relationship can be established

9
for the constructs under consideration. In other words, the utter goal of the Granger
causality testing procedure is to determine the direction of causality – if any –
between exports and growth, that is if growth in exports precede income growth or the
other way round. Ergo, the ultimate goal of this dissertation is to conclude on whether
Greek policymakers should pursue, favor and place emphasis on export promotion
strategies as a means of sparking growth, which in turn can mitigate the debt/GDP
ratio and help the Greek economy to exit the current economic crisis.
1.3 Limitations in data, methodology and theory
The current study utilized annual data on Greek real GDP and real exports – in
billion euros – of goods and services over the period 1960 to 2012, a total of 53
observations. Time series pertaining to constant-prices Greek real GDP and constant-
prices Greek real exports, both expressed in local currency, have been derived from
the World Developments Indicators database of the World Bank. Variables were
transformed in natural logarithmic form in order to reflect percentage change over
time when considered in first difference form.
At that point it would be useful to site some methodological limitations
imposed on the current study. To begin with, we should mention that since other
constructs that play a role in the relationship between exports and income growth -
such as foreign direct investment, capital formation, terms of trade, labor force and
real imports just to name a few – it would be prudent to include them in the analysis
in order to eschew model misspecification and reach at more reliable conclusions. The
overarching reason for adopting a bivariate model and focus exclusively on the
relationship between exports and income while setting aside all other potentially
relative variables is predilection for simplicity.
A second problem relates to the so called “endogeneity of the exports growth
variable within the equation of income growth” (Shan J., Sun F., 2010, Love J.,
Chandra R., 2005). This problem stems from the fact that in the national income
accounting identity exports are essentially an integral part of output. In effect if our
study failed to account for this exports endogeneity issue it would be susceptible to
reaching at inconsistent and unreliable conclusions as regards the relationship
between exports and growth. The current study duly addresses the exports
endogeneity problem by considering GDP growth net of exports growth.

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1.4 Leg-work methodology
As mentioned before, the current thesis seeks to investigate the exports-growth
relationship within the concept of Granger causality. To that end, it is essential that
we commence with testing the integration properties of the variables considered in
logarithmic form. For that purpose we will resort to the Dickey-Fuller, Augmented
Dickey Fuller and Phillips and Perron tests for the existence of unit roots.
Having concluded on the order of integration of the time series, we should
proceed with a testing for cointegration between the relative variables by using the
Johansen cointegration testing procedure. At that point it should be clarified that the
same order of integration of the series referring to exports and income is a sine qua
non for performing the cointegration testing procedure. Testing for cointegration
between the constructs is commensurate to testing for the order of integration of the
residuals in the cointegration equations. For example, if the variables are both
integrated of order 1, that is I(1) then they will be cointegrated if and only if the
residuals in the cointegrated equation are found to be I(0).
Having established the long-run relationship between exports and growth we
should proceed with testing for the nature and direction of causality between the
variables under consideration. For that purpose we will use the Engle-Granger two
step causality testing procedure, which requires formulating an error-correction
(ECM) model where both short-run and long-run dynamics can be captured.
1.5 Dissertation Outline
The rest of this thesis is organized as follows: Chapter 2 presents the review of
international literature on export-led growth by reporting the details of each reviewed
study, namely year, author, data sample, applied methodology and findings. In
Chapter 3 we describe the methodology that was adopted while conducting the leg-
work. In Chapter 4 we report and comment on the results of the research. In Chapter 5
we conclude and discuss on the policymaking implications of results. Finally, the
Appendix contains econometric software outputs-results and all pertinent statistics.

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Chapter 2
Literature Review
2.1 Introduction
The notion of export-led growth posits that not only exports and income
growth are positively correlated but also that the former unilaterally begets the latter.
The bulk of empirical literature examining the relationship between exports and
growth has been compiled during the last two decades. However, academic focus on
the premise of export-led growth seems to have gathered momentum with the
replacement of fixed exchange regimes with floating ones in the early 1970‟s.
Prime academic work substantiating the beneficial impact of free trade on
income growth and welfare enhancement dates back in 1776 when Adam Smith
compiled his work “The Wealth of Nations” as well as in 1817 when David Ricardo
elaborated on “The Principles of Political Economy and Taxation”. The former argued
that gains would ensue if countries specialized and traded goods in whose production
they possessed an “absolute advantage” over others whereas the latter stressed that if
international production and trade was governed by the principle of “comparative
advantage” – which is interrelated with the notion of opportunity cost – then world
income would expand even further.
It is a fait accompli that policymakers in developing countries exhibit a
preference for export promotion strategies in lieu of import substitution strategies.
Proof of this is the establishment of free trade zones through the signing of free trade
agreements such as GAAT, NAFTA, WTO and the more recent Trans-Pacific
Partnership (TPP) and Transatlantic Trade and Investment Partnership (TTIP). The
predilection for export promotion strategies can be justified on the grounds that
protectionist strategies, expressed chiefly through the imposition of tarrifs and quotas
on imports, waste productive resources, distort the efficient pattern of production and
trade and limit the level of income.
To that end, the major benefits of export promotion strategies can be
summarized in the following: i) exports assist the exploitation of economies of scale,
especially in the instance of small open economies, ii) exports, by mitigating foreign
exchange constraints, allow increasing volumes of capital as well as intermediate
goods, iii) exports, by exposing domestic producers to international competition,

12
enhance technical competence through learning by doing and in turn promote efficient
allocation of resources.
In the current chapter 40 papers that investigate the export-growth nexus are
being reviewed. The earliest paper was compiled in 1967 whereas the latest in 2011.
As mentioned earlier these studies can be classified according to the type of data
employed – time series or panel data – or according to the model employed – simple
or augmented production function, bivariate or multivariate framework. Moreover
these papers can be discriminated with regards to the methodology employed in order
to test for cointegration and/or causality. Our choice was to quote the literature
reviewed in chronological order. It is worth noting that the variety of findings
suggests that the relative literature can be at best characterized as inconclusive and in
the process of ongoing refinement.
2.2 Early studies
One of the earlier studies on the examination of the causal relationship
between export growth and income growth is that of Emery (1967). The author
garnered annual data on real GNP, exports and current account earnings – the last two
deflated by the US wholesale price index – for 50 countries over the period 1953-
1963. To that end, multiple correlations and simple OLS regression equations were
calculated and results suggested that the most significant correlation was between
exports and GDP in the context of which exports should increase by 2,5% in order for
per capita real GNP to increase by 1%.
On another early study, Lubitz (1973) employed data for output growth and
export growth over the period 1954-1969 for Belgium, Canada, France, Germany,
Italy, Japan, Netherlands, Sweden, Switzerland, UK and US. Then he specified a
regression with GNP growth as the dependent variable and export growth along with
investment ratio as explanatory variables, where rate of growth of manufactured
exports was used as a surrogate for exports. Finally, after applying the simple OLS
method the researcher reached at the – rather unqualified – conclusion the statistical
association between export and output growth is valid and exports seem to be the
handmaiden rather than the engine of growth.
The paper of Balassa (1978) investigated the relationship between exports and
economic growth in a group of eleven developing countries over the period 1960-
1973. Two sub-periods were also considered – 1960-66 and 1966-73 – to account for

13
policy changes that took place in the mid-sixties. To that end total exports and GNP as
well as manufactured exports and manufactured output where employed as variables.
In that margin, Spearman rank coefficient correlations where calculated for the
relationship between export growth and output growth, export growth and growth of
output net of exports, incremental export-output ratios and output growth, incremental
export-output ratio and growth of output net of exports, increments in exports-output
ratio and output growth and average ratio of exports to output and output growth.
Furthermore, following Michalopoulos and Jay (1973) the paper also introduced
domestic and foreign investment and labor as explanatory variables along with
exports. Empirical results suggested a propitious clout of exports on economic
growth beyond the contribution of domestic and foreign capital and labor.
Kavoussi (1982) examined the association between exports and growth for a
sample of 73 developing countries. For that purpose a production function was used
wherein the real growth rate of GNP was regressed on a constant, the real growth
rates of capital stock and labor force and the real growth rate of exports and data
spanning the period 1960-1978 were collected for each variable. The sample was
further discriminated to low and middle-income countries and OLS was applied to all
3 samples. Results yielded a positive and highly significant coefficient for the real
growth of exports – suggesting a favorable clout of export expansion on income –
with the impact of export growth on income growth being stronger in the sample of
middle-income countries.
In order to account for the repercussions of the composition of exports on the
relationship between exports and growth, the variable pertaining to exports was split
to exports of primary and exports of manufactured goods. Estimation results revealed
that the composition of exported goods played a critical role on the magnitude of
impact of export growth on income growth for only the middle-income countries,
suggesting that as a country advances the composition of exports should be shifted
towards manufactured goods.
Another early paper elaborated by Chow (1986) investigated the causal
relationship between export growth and growth in manufacturing output for nine
newly industrializing countries (NIC) – Argentina, Brazil, Hong-Kong, Israel, Korea,
Mexico, Singapore and Taiwan –. Data for exports and manufacturing output for the
decades 1960 and 1970 were considered and the Sim‟s causality test was performed.
Test results suggested bidirectional causality for 6 countries, export-led

14
manufacturing output growth for Mexico, whereas no causality was reported for
Argentina.
Darrat (1987) also probed the causal association between exports and output
growth for the Asian Tigers by employing time series data over the period 1955-1982.
By implementing White‟s causality technique on a regression where real export
growth has been lagged for two years on the right-side, the author reached at the
upshot that export extension engenders welfare enhancement only for the case of
Korea while for no causality is being testified for the other 3 Asian Dragons.
The study of Bahmani-Oskooee et al (1989) probed the nature of causality
between exports and growth for 20 least developed countries (LDCs). To that end,
they employed annual time series data for the growth rates of real exports and real
output for each country for a period ranging from 24 to 37 years on occasion. On a
prime stage the series were tested for stationarity and when it was found to be violated
first differencing restored the problem.
The study proceeded with the implementation of Hsiao‟s approach to Granger
causality testing which uses Akaikes FPE criterion for inference. Results suggested
positive causality from exports to growth in Dominical Republic, Indonesia, Korea,
Taiwan and Thailand, negative causality from exports to growth for El Salvador,
Paraguay and Peru, positive causality from economic growth to export growth for
Korea, Nigeria, South Korea and Thailand and negative causality for Indonesia.
Therefore, a feedback relationship was traced for Korea and Thailand while no
causality was the case for the remaining countries of the group.
2.3 Studies elaborated on the decade of 1990
Ahmad and Kwan (1991) investigated the exports-growth relationship for 47
African countries. The data set comprised pooled time series and cross-section
observations – amounting to 329 observations for each variable – over the period
1981-1987 for national income, proxied by real per capita GDP or annual growth of
real GDP and exports, proxied by total real manufactured exports or the share of
manufactured exports in total exports deflated by consumer price indices with 1980 as
base year. All series were checked for stationarity and when non-stationarity was the
case first differencing secured stationarity. Next, in the context of causality
examination in the bivariate context the Granger causality testing procedure was
adopted.

15
The sample of 47 countries was further discriminated into 30 low-income
countries and 17 high and middle-income countries in order to perform the testing
process. Results unanimously pointed towards the conclusion of no causality between
exports and growth for the host of selected countries – implied that other variables
may interfere in the relationship – and only for the subsample of 17 high and middle-
income countries – when the share of manufactured exports was used as a surrogate
for the exports variable – was timid causality from GDP to exports found to be the
case at the 10% significance level.
Marin (1992) elaborated on a paper where the log of labor productivity, the
log of exports of manufacturing goods, the log of terms of trade and OECD output at
constant prices were the variables for which quarterly data for 4 OECD countries
(United States, Japan, United Kingdom, Germany) spanning from 1960:1 until 1987:2
were employed. Having established that all variables are integrated of order 1 – that is
I(1) – the author then proceeded with testing for cointegration with DF, ADF and
CRDFW tests. Results failed to reject the null of no-cointegration between exports
and labor productivity but when terms of trade and OECD output where introduced in
the cointegration equation test results suggested cointegration for all countries except
for the UK.
Having established cointegration among all variables in the system, the
attention turned to Granger-causality testing in the context of the specification and
estimation of a VAR model. Four different VAR regressions were specified, including
and excluding an error correction term as well as a deterministic time trend. Results
indicated unidirectional causality from exports to labor productivity in all countries
bar Japan where bidirectional causality was detected, from the terms of trade to
productivity for the US and UK and from OECD output to productivity in all
countries except for the US.
The study of Oxley (1992) probed the validity of the export-led growth
hypothesis for the Portuguese economy. The data utilized were annual observations of
real Portuguese GDP and real Portuguese exports measured in 1914 prices and
covering a period from 1833 to 1985. Commencing with examining the order of
integration of the variables in log form by using the ADF test, the author concluded
that both had a unit root at their levels and first differencing was sufficient to render
them stationary. Next, the Johansen maximum likelihood approach to cointegration
was considered and its application produced a single significant cointegrating vector

16
that indicated that the series were cointegrated. Therefore the procedure continued by
applying the standard augmented Granger causality test procedure. The Akaike‟s
Final Prediction Error was used as a criterion for specifying the lag length in the VAR
models. Results rejected the export-led growth hypothesis at the 5% significance level
in favor of reverse causality – i.e. income growth precedes export growth – for
Portugal.
On another paper on export-led growth, Love (1994) investigated the
relationship between income growth and export growth and between growth of the
public sector and income growth for 20 developing countries. Depending on the
availability of data for each country, the time interval covered ranged from 1960-1990
to 1964-1990. On a first stage the time-series data for each variable of each country
were tested for stationarity and were first differenced if stationarity was found to be
breached. Next, the study proceeded by applying Hsiao‟s two-stage Granger
causality-testing procedure that employs VAR models. To that end, Akaike‟s Final
Prediction Error (FPE) was used to determine the order of lags and the F-statistic was
considered in order to conclude on the direction of causality at each instance.
Results indicated causality running from exports to income growth in 14
countries out of the 20 countries in the sample while no causality was detected for a
group of 6 countries. Also no causality from income growth to export growth was
traced for 11 countries. Moreover bidirectional causality is reported for 4 countries.
Furthermore, when the variable referring to income growth was considered as net of
export growth, causality from exports to income growth was observed for 5 countries.
At the same time no causality was found for 8 countries whereas inverse causality
though not statistically significant was indicated in 8 countries.
As far as causality between growth of the public sector and income growth,
causality from the former to the latter is reported for 3 countries and no causality for
the remaining 17 countries. In addition, inverse causality is reported for 8 countries.
Furthermore when the construct for income growth is considered as net of
government expenditure causality from public sector to income growth is limited to 1
country, and inverse causality to 7 countries. Conclusively this study found only weak
support for the export-led and public sector-led growth hypotheses and recommended
that sharper outcomes may be drawn from the adoption of a more sophisticated
methodology.

17
Another paper by Bodman (1996) focused on the soundness of the export-led
growth hypothesis and in particular the relationship between exports and labour
productivity for Australia and Canada. Quarterly and seasonally adjusted data on the
log of exports of manufactured goods, the log of total exported goods and services,
the log of labor productivity in the manufacturing sector and the log of total labor
productivity were employed. The data covered the period from 1960:1 to 1995:4 that
amounts to a total of 144 observations. On a first stage the properties of the series –
order of integration – were examined by applying the Augmented Dickey Fuller and
Phillips and Peron tests. Both tests indicated that all variables were integrated of order
1 – I(1) –.
The second stage of the process involved testing for cointegration by adopting
the Johansen and the Johansen and Juselius process. The optimal order of lags in the
VARs was determined according to the Schwartz Bayesian Criretion. Test results
suggested that labor productivity and exports were cointegrated for both countries.
Results on parameter stability and structural change testing could not reject the null of
a stable relationship between exports and labor productivity for the case of Canada
but hinted towards an unstable relationship in Australia. However the instability
seemed not to correspond to sharp changes but to have occurred gradually over time,
suggesting no change in regime. Estimation results within the context of a vector error
correction model (VEC) traced unidirectional causality running from exports to labor
productivity in Australia and bidirectional causality in Canada.
The study of Thornton (1996) probed the validity of the export-led growth
assumption for Mexico in the context of cointegration and Granger causality. The data
used for real exports and real GDP were annual time-series for 1895 until 1992. The
author begins by examining the properties of the time-series with the implementation
of the augmented Dickey-Fuller test for unit-root testing for series stationarity. After
concluding that the series are non stationary at levels but stationary in first-differences
he then moves to testing for cointegration between the series by applying the
Johansen maximum likelihood approach.
Test results identified a single significant cointegrating vector and indicated
the presence of cointegration between real exports and real GDP for Mexico at the
95% as well as at the 90% level of confidence. Having established cointegration the
paper then shifts attention to the investigation of the existence and – if any – the
direction of causality. The F-statistics derived from the application of the Granger

18
causality testing procedure suggested that causality run unilaterally from exports to
economic growth and therefore fortified the validity of the export led growth premise
for the case of Mexico.
On another elaboration, Henriques and Sadorsky (1996) gauged the robustness
of the export-led growth hypothesis for the case of the Canadian economy in the
margin of a trivariate framework comprising of real Canadian exports, real Canadian
terms of trade and real Canadian GDP. All 3 variables were considered in natural
logarithmic form and relative data – available for the period 1870-1991 - are
separated into two sub-periods whereby the first covers a period 1877-1945 – in order
to account of the two world wars and the Great Depression – whereas the other covers
the postwar period 1946-1991. The examination kicked-off by examining the time
series properties of the data. The ADF and Phillips-Perron tests suggested that all 3
series were integrated of order 1 (I(1)).
Since all series were found to be integrated of the same order, the analysis
proceeded with a systems cointegrating analysis which considered the vector
autoregression approach (full maximum likelihood procedure) proposed by Johansen
and Juselius. For an order of lag 3 results indicated the presence of a co-integration
rank of one and in effect confirmed that the series were co-integrated in all 3 sample
periods whereas for an order of lag 4 results suggested co-integration only for the
subperiods.
Insofar as the series were found to be co-integrated the research proceeded
with testing for causality in the Granger sense. For a lag length of 3 results suggest
that growth in GDP promoted growth of exports at all three sample periods while for
lag length of 4 the hypothesis that growth in GDP spurred export growth is not
rejected for the subsample periods. Moreover for the latter, results indicated that
export growth impacts terms of trade irrespective of lag length. Conclusively this
paper provided evidence in favor of growth-led exports for Canada.
Shan and Sun (1998) compiled a paper that examined the soundness of the
export-led growth premise for the Chinese economy. Monthly, seasonally-adjusted
data over the period spanning from May 1978 to May 1996 – a total of 102
observations - were employed in a six-variate framework comprising imports, exports
and real industrial output (used as a proxy for real GDP growth), energy consumption,
labor force and capital expenditure for China. All variables were considered in

19
logarithmic form and industrial output and capital expenditure were adjusted for
inflation by employing the CPI index.
The study begins by presenting an overview of the literature on export-led
growth. In particular 30 papers are being reviewed and data, variables, methodology
and conclusions are presented for each. Next, the order of integration of the series
under consideration is examined by applying the Augmented Dickey-Fuller (ADF) as
well as the (PP) Phillips and Perron testing procedures. Both tests indicated that all
time series were integrated of order 1 (I(1)) variables. The process continued by
specifying a six-variable VAR model in order to test for causality according to Toda
and Yamamoto‟s procedure.
To that end, the researchers followed the Akaike Information (AIC) and
Schwartz (SC) criteria in order to determine the optimal lag length in the VAR but
report that they used several other lag lengths in order to assess the robustness or
sturdiness of test results. Test results indicated the existence of bidirectional causality
between exports and growth for the case of China. Effectively this study rejected the
export-led growth hypothesis in favor of a feedback effect between exports and
growth for the case of China. Finally causality tests between imports and output,
energy and output, labor and output and investment and output were also carried out
and suggested stronger causality than between exports and growth.
Shan and Shun (1998) also probed the export-led growth hypothesis for the
Australian economy. Seasonally-adjusted quarterly data from 1978:3 to 1996:3,
referring to the logarithms of real exports, real manufacturing output growth the
growth of total persons employed, the growth of imports and gross fixed capital
expenditure were deployed in an augmented production function framework. To that
extent, the Toda and Yamamoto (1995) procedure for causality testing was adopted
and a seemingly unrelated regression (SUR) version of a VAR system was
considered.
Before causality-testing the series were subjected to the ADF test for order of
integration which indicated that all series were I(1) and in effect that first differences
should be included in the VAR. Testing restrictions of the parameters in the VAR
with Wald and MWald statistics suggested that a one-way causality from industrial
growth to exports growth with a one year time lag – with the result being robust to lag
selection – was the case for Australia.

20
The study of Dhawan and Biswal (1999) re-examined the export-led growth
hypothesis for India. The data employed were annual time series in 1981 prices,
covering a period from 1961 to 1993 pertaining to the following variables: real gross
domestic product, real exports and net terms of trade considered in natural logarithmic
form. For the examination of the integration properties of the data the Phillips and
Perron (PP) unit-root testing procedure was performed and indicated that all series
were integrated of order 1 (I(1)).
The analysis then proceeded with testing for cointegration following the
Johansen‟s maximum likelihood procedure and an unrestricted Vector Autoregression
model was considered estimated. Results suggested the existence of at most one
cointegration relation. Having determined that the variables were cointegrated, the
paper attempted to clarify the direction of short-run and long-run causality by
specifying an error correction model (ECM) according to the Granger causality
testing procedure. Test results suggested that terms of trade and GDP jointly affected
exports – in the Granger sense – both in the short and in the long-run and also that
exports affected GDP only in the short-run. In general this paper advocates for a
bidirectional short-run causality – and not for export-led growth – between exports
growth and GDP growth for India.
Finally, the paper of Giles and Williams (1999) was an epitome of 57 cross
section studies covering the period 1963-1998 and 106 time-series studies covering
the period 1972-1998. The authors report that various settings have been encountered
in the examined literature in the context of which variables such as terms of trade,
investment ratio and country openness – among others – were also taken into account
in the process of causality testing between exports and growth. The bulk of papers
reported considered ADF and PP tests for series stationarity, VAR‟s for cointegration
testing, Error Correction Models for causality testing, Impulse Response Functions
and Forecast Error Variance Decompositions. The paper concludes that high levels of
growth are significantly associated with high levels of export growth in studies
considering cross section data, cointegration test results crucially depend on the
assumed deterministic trends in the system and to the order of lags and outline that
although changes in export levels seem to have an impact on growth the relationship
between those two variables is convoluted and far from conclusive.

21
2.4 Studies elaborated on the decade of 2000
Laszlo (2004) tested for Granger causality between real exports of goods and
services and real growth in 25 OECD countries. To accommodate the possibility of
indirect causality, one more variable – the percentage to GDP of total real trade flows
as a surrogate for openness – was also considered. The sampling period spanned 37
years from 1960 to 1997 for all countries except for Hungary where data were
available for 1970-1998 and Korea and Mexico where the period 1960-1998 was
considered. All variables were considered in natural logarithmic form.
The author states explicitly that he will adopt two complementary strategies in
order to bolster the Granger-causality test results. The first strategy – indirect - is
based on series integration and cointegration in order to formulate an appropriate
VAR model to test for Granger causality whereas the second – direct – is anchored on
Toda and Yamamoto‟s procedure that does not rely crucially on pre-testing for
integration and cointegration.
With regard to the indirect approach the research employed five unit-root and
three cointegration tests, various specifications and different deterministic trends.
Results indicated 8 countries – Iceland (export-led growth), Canada, Japan and Korea
(growth-led exports), Luxemburg and the Netherlands (no causalit) and Sweden and
the UK (bidirectional causality) – where results were invariable to different method or
specification. The researcher reports that in all other countries the causality test results
were inconclusive and attribute the latter to the impotency to clarify the time-series
properties of data in question. There is also documentation that there is possibly no
causality for Denmark, France, Greece, Hungary and Norway, export-led growth in
Australia, Austria and Ireland and growth-led exports in Finland, Portugal and the
USA. The paper closes by claiming that in Belgium, Italy, New Zealand, Spain and
Switzerland the results are too ambiguous to support any conclusion.
The paper of Dritsaki et al (2004) probed the relationship between trade,
Foreign Direct Investment and economic growth for Greece for the period 1960-2002.
All data were expressed in logarithmic form. The Augmented Dickey Fuller was used
to examine the order of integration of the series in question. Test results indicated that
all variables were integrated of order one (I(1)).
Effectively, the paper proceeds with cointegration testing by applying
Johansen‟s maximum likelihood procedure. The latter identified 2 statistically
significant cointegration vectors and the estimation of the long-run relationships

22
suggested that FDI is inelastic to exports while output growth is elastic to exports.
According to those results, a vector autoregressive (VAR) model with an error
correction mechanism was specified and the Schwartz Bayesian information criterion
was employed for determining the optimal lag length. Also, it is stated that first order
specification of the model VAR(1) was selected with a constant and a time trend.
Results supported bidirectional causality between Greek exports and Greek economic
growth and unidirectional causality flowing from foreign direct investment to both
Greek economic growth and Greek exports.
Shirazi and Manap (2004) managed to clarify the causal relationship between
exports and growth for Pakistan. Towards that goal, they considered a trivariate
framework consisting of real exports, real imports and real GDP – with all variables
taken at their logarithmic forms – and annual data for all constructs were collected
over the period 1960-2003. Prior to testing for cointegration, the ADF and Phillips-
Perron tests for stationarity were applied and results validated that all series were
integrated of order 1.
Next, the Engle-Granger and CRDW tests for cointegration were employed.
Although results indicated the existence of a long-run relationship among the
variables, Johansen‟s approach to cointegration testing was also harnessed in order to
grant more power to results. Results confirmed the existence of one cointegrating
vector. In effect, the study proceeded with causality testing in the context of the
methodology developed by Toda and Yamamoto. Results indicated that the export-led
growth hypothesis was valid for Pakistan over the period examined whereas a
feedback effect between imports and growth was also confirmed.
Repas and Christopoulos (2005) tested the validity of the export-led growth
theory in 22 developing Asian and African countries over the period 1969-1999. The
authors justify the selection of panel data on the grounds of more power in
significance tests for unit roots and cointegration and also to incorporate country and
time specific effects that could help identify unobservable variables that are correlated
with the explanatory variables. To that end the following variables were considered:
real GDP and real exports, investment share, and employment (used as a surrogate for
country size). The analysis started with testing for unit-roots by the Augmented
Dickey-Fuller (ADF) test which showed that all variables were I(1). In order to
buttress the power of the testing procedure and the reliability of conclusions, the

23
authors additionally applied panel unit root tests which verified the presence of a unit
root at variable levels that vanished when first differences were considered.
Next, the paper turned focus on cointegration testing by performing Pedroni‟s
(1997, 1999) panel cointegration and results suggested cointegration among the
variables. In consequence, the paper continued with estimating the long-run
equilibrium relationship by the fully modified OLS method. The output suggested a
positive and statistically significant clout of real GDP to export growth in 12 of the 22
examined countries. Furthermore in 8 countries investment growth seemed to exert a
positive impact on export growth. Finally country size displayed an inverse
association with export growth. In general, growth-led exports theories for economies
in transition found support in that study and in effect – in order to temper the long run
adverse impact of focusing on import substitution policies alone – a mix of export
promotion and import substitution is proposed within the concluding remarks.
Bahmani-Oskooee et al (2005) tested the export-led growth hypothesis in 61
developing economies over the period 1960-1999. In that context, they considered a
log linear version of the – extended Solow‟s – production function of the form where
output was regressed labor, stock capital, exports and imports. In a first stage, the
order of integration of the series under consideration was examined by employing the
processes proposed by Levin and Lin (1992) as well as by Im, Pesaran and Shin
(1997) proper for integration testing in heterogenous panel data. Test results from
both processes suggested that all variables were non-stationary and the study
proceeded by testing for panel cointegration following Pedroni‟s (1995, 1997) test for
cointegration of homogenous and heterogenous panels.
Results indicated that the residuals were stationary - with the result being
robust to lag length – only at the juncture where the natural logarithm of exports was
the dependent variable, suggesting cointegration among all variables. Thus the
implication was considered as suggesting that developing countries should espouse
growth-enhancing policies. Moreover, since cointegration was also detected when
both the natural log of capital and the natural log of imports were the dependent
variables in respective equations, it is also concluded that growth-enhancing policies
would foster capital accumulation and larger volumes of imports apart from larger
volumes of exports.
The study of Love and Chandra (2005) attempted to evaluate the validity of
the export-led growth theory for the case of 7 South Asian countries, namely

24
Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka. The time span
for collected data pertaining to real exports and real output oscillated in the period
1950-1998 to the period 1980-1997 conditional on the availability in each country. In
addition, in order to confer uniformity in time span, the period 1980-1997 was
considered for each country. Exports data were deflated by unit export values and,
where not available, by the consumer price index. All variables were considered in
logarithmic form.
Initially, the variables where checked for unit-roots for the instance of each
country based on the conduct of the Augmented Dickey-Fuller (ADF) test, and results
highlighted that all variables were I(1). Next, cointegration testing was performed by
applying the ADF testing procedure on the residuals taken from the OLS estimation
of the cointegration equations. Results recommended that only in Bangladesh and
Bhutan were real exports and real GDP cointegrated, in other words, could be bound
in a long-term relationship.
Finally, existence and direction of causality were tested in terms of error
correction modeling according to the approach recommended by Engle-Granger.
Results were rather mixed, suggesting export-led growth for India, the Maldives and
Nepal, growth-led exports for Bangladesh and Bhutan and no causality for Pakistan
and Sri Lanka. For the shorter period 1980-1997 results changed for India and
Bangladesh where now no causality was traced. The latter outcome was interpreted as
a lag of manifestation of export-led growth in recently pursued liberalized trade
regimes. In general the upshot is reported as expected, given the inward looking
regimes typical of those South Asian countries.
Glasure and Lee (2005) examined the export-led growth hypothesis for Korea
in the period starting from the first quarter of 1973 and ending at the last quarter of
1994. A shorter period up to the 4th
quarter of 1988 was also considered. Within that
context the following variables were used: real GDP, real exchange rate, real
government spending, real money supply and real exports. All variables were
considered in natural logarithmic form. On a first stage the variables were tested for
stationarity by the ADF test which indicated that all were I(1).
The Johansen test for cointegration was applied and indicated that an error-
correction term should be included in the VAR models. In effect, two VEC models –
one with real GDP and another with real exports as the dependent variable where
variables were considered in first difference form – were specified in order to check

25
the presence, direction and nature of causality. Results suggested bidirectional
causality between economic growth and export growth for Korea that dominates in
the long-run. Finally, the variance decompositions (VDC) suggested that economic
growth Granger-causes export growth in the full but not in the shorter sample period.
Awokuse (2006) probed the export-led theory for Bulgaria, Chez Republic and
Poland. The constructs considered in natural logarithmic form, pertained to quarterly
data and concerned the following: real GDP growth, real exports, real imports and
gross capital formation as proxy for capital and labor force. The period covered for
each country was the following: 1991:1-2004:3 (for Bulgaria), 1993:1-2002:4 (for
Chez Republic) and 1995:1-2004:2 (for Poland). First the ADF and KPSS tests for
unit root testing were applied and indicated that all series were I(1). In effect, the
Johansen cointegration test was performed - with an optimal lag of 2 in the ECM –
and suggested that cointegration permeated the series under consideration. Next,
ECM-based Granger causality tests were implemented. Results showcased a feedback
relationship between exports and growth for Bulgaria, unilateral causality running
both from exports and imports to income growth for the Chez Republic as well as
from imports to income growth for Poland. Empirical results were drawn at the 95%
level of confidence.
The study of Jin and Shih (2006) tested the validity of the export-led growth
theory for the Four Little Dragons. The quarterly data spanned in the period 1973:1-
1993:2 and refer to the following variables: real exports of goods, real gross domestic
product, real exchange rate, word commodity price level for all exports – used as a
proxy for foreign price shocks – and the industrial production index for all industrial
countries – used as a proxy for foreign output shocks. All series were transformed to
natural logs. Initially, all series were subjected to the ADF testing procedure in order
to be examined for stationarity. Test results pointed that all series appeared non-
stationary in levels and that first differencing would render them stationary.
Next the paper proceeded to testing for cointegration by adopting the Engle-
Granger process. Test results suggested that the null of no-cointegration could not be
rejected for all countries and in effect a long-run equilibrium relationship between the
variables did not exist. Thus, the authors turned attention to the short-run impact
between output and exports through the computation of variance decompositions
(VDCs) and impulse response functions (IRFs) based on a VAR model without an
error correction term. VDCs results suggested a feedback relationship for all countries

26
except for Taiwan, whereas IRF results confirmed the short-run feedback effect even
for the latter.
Mamun and Nath (2006) investigated the causal relationship between exports
and industrial production for Bangladesh, using quarterly data for the period 1976-
2003. First, the ADF testing procedure was carried out and concluded that all series
were integrated of order 1, that is I(1). Therefore, the Engle-Granger testing procedure
was performed in order to probe whether the series were cointegrated. The estimated
long-run equilibrium relationship dictated the existence of a significant, positive long-
run relationship between exports and industrial production. To that end, and error
correction model (ECM) was specified and estimated in order to gauge the nature and
direction of causality. Estimation results indicated the existence of long-run causality
- but no short-run causality - running from exports to industrial production for
Bangladesh.
The study of Abual-Foul (2006) focused on the examination of the export-led
growth for Jordan over the period 1976-1997. For that purpose annual series –
transformed into logarithms – for real exports and real output were employed. On
account of the relatively limited span of the time series, which reduces the power of
unit-root tests, the authors followed Hsiao‟s approach to Granger causality testing.
According to that procedure, a bivariate VAR in levels, a bivariate VAR in first
differences and a bivariate ECM model were specified and the Akaike‟s FPE criterion
was used as a guide for optimal lag length selection. Empirical results lent credence to
the validity of the export-led growth hypothesis for Jordan.
Chang et al (2007) managed to shed light on the causal relationship between
exports, imports and real GDP for Taiwan by employing quarterly data for the 3
variables on the period starting from the first quarter of 1971 up to the third quarter of
1995. In order to test the stationarity properties of the series the augmented Dickey-
Fuller (ADF) test – with a constant but no time trend – was employed and results
pointed towards integration of order 1 (I(1)) for all variables.
Next, Johansen‟s test for cointegration was applied and results suggested that
the three variables were cointegrated. Next the causal relationships were investigated
based on the specification of an error correction model (ECM) and results traced
bidirectional causality between income and both imports and exports as well as
between imports and exports. Furthermore, impulse response functions found a timid

27
negative effect of export shocks on income whereas variance decomposition analysis
suggested a weak positive effect of exports on income.
Balaguer and Cantavela-Jorda (2009) examined the export-led growth
hypothesis for Spain. In this context, they considered 3 variables: real domestic
output, real aggregate exports and a variable accounting for the structural
transformation of exports from traditional to nontraditional commodities, dubbed
export composition in relative terms. Annual data covering the period 1961-2000
were considered for each variable taken at logarithmic terms. On a first step, the
integration properties of the series were assessed with the application of the ADF and
PP unit-root tests and results unanimously indicated that all series were integrated of
order 1.
The second step involved testing for cointegration by adopting Johansen‟s
methodology. Results of both test statistics – ιMax and Trace – confirmed the
existence of one cointegrating vector among the variables which were therefore
considered as cointegrated. Ergo, in the final step a VEC model was specified and
estimated in order to test the direction and nature of causality. Estimation results
pointed towards a bidirectional causal relationship between Spanish exports and
output with a concomitant unidirectional causality running from Spanish export
structure to economic growth.
The study of Pazim (2009) employed panel data analysis in order to gain
insight into the relationship between exports and growth in 3 BIMP-EAGA countries,
Indonesia, Malaysia and Philippines in the period 1985-2002. In that context, 3
models were considered: a polled OLS model, a one-way fixed effects – accounting
for country effects - model and a two-way fixed effects – accounting for both country
and time effects - model. Testing with Lagrange Multiplier and Hausman statistics
revealed that the one-way random effects analysis was a superior model which
signified that the 3 countries under investigation were affected by only random effects
related to country specific conditions. Empirical findings of estimation lead to the
conclusion that exports could not be envisaged at the engine of growth for those 3
BIMP-EAGA countries.

28
2.5 Recent studies
Panas and Vamvoukas (2010) attempted to test the export-led growth
hypothesis for Greece. For that purpose they mustered annual data over the period
1948-1997 for real GNP – a proxy for output – real exports, the index of the nominal
effective exchange rate of the Greek drachma and the consumer price index (CPI) – a
proxy for price level. All variables except for CPI were measured in logarithms. First,
the series were checked for unit-roots by carrying out the Phillips-Perron (PP) testing
procedure. Test results – robust to model specification – suggested that all series were
non-stationary at levels but stationary in first differences.
Next, the Johansen method for cointegration testing was applied and results
pointed towards the existence of a long-run relationship between exports and output.
To that end, an error correction model (ECM) – containing the auxiliary variables -
was specified in order to determine the nature and direction of causality. Results from
the estimation of the ECM rejected the ELG hypothesis and showcased that Greek
output Granger-causes Greek exports in the long run. The latter outcome was also
supported by the implementation of impulse response functions (IRFs).
On another paper, Jin and Yu (2010) tested the export-led growth nexus for
the US economy. The model employed considered the following variables: real
exports, real output, real exchange rate, foreign output shocks, capital and labor. For
estimation purposes, quarterly data for the aforementioned variables spanning in the
period starting from the 1st
quarter of 1959 and ending at the 3rd
quarter of 1992 were
collected. All constructs were transformed to logarithmic form and the augmented
Dickey-Fuller test was performed for unit-root testing. All series were found to be
stationary in first differences.
Following, the Engle-Granger as well as Hansen‟s tests for cointegration were
applied and both found no evidence of cointegration. In effect, only first differences
of variables – but no error correction term – were included in the VAR model. Next,
Variance Decompositions (VDCs) as well as Impulse Response Functions (IRFs)
were computed in order to test the export-led growth hypothesis. Both the VDCs and
IRFs results indicated a trivial and insignificant effect of export growth on output
growth and vice-versa which in turn suggested the rejection of the export-led growth
hypothesis for the US economy.
Ozturk and Avaranci (2010) investigated the soundness of the export-led
growth hypothesis for Turkey. To that end, they considered an aggregate production

29
function that apart from real output and real exports also included real terms of trade
and foreign output shock in the context of which seasonally-adjusted quarterly data
covering the period 1989:4-2006:3 were employed. On a first step, the univariate
properties of the series were examined by conducting the Augmented Dickey Fuller
and the Zivot and Andrews unit-root tests. Both tests validated that all series were
integrated of order one (I(1)).
Next, the application of the Johansen test for cointegration revealed the
existence of at most one cointegrating vector in the system. Effectively, the Toda and
Yamamoto procedure for Granger causality testing was espoused and a Vector
Autoregressive Model along with a Vector Error Correction Model was specified.
Estimation results showcased that causality for Turkey run unidirectionally from real
export growth to real output growth both in the short and the long run.
The study of Harrerias and Orts (2010) attempted to infer whether the
conspicuous growth of the Chinese economy could be attributed to its marked export
performance. To that end they considered a labor productivity as well as an output
model comprising of the logarithmic forms of the following constructs: Chinese GDP,
exports, investment, real exchange rate, R&D expenditure and US GDP. Results from
ADF and Phillips-Peron tests – robust to model specification - indicated that all
variables were integrated of order 1. In the margin of contegration testing the authors
followed the methodology proposed by Johansen (1995) and Johansen and Juselius
(1994). Results suggested the existence of 2 long-run relationships in each model. In
effect 2 error correction mechanisms were specified and estimated for both models.
Results from the first model were in favor of a positive relationship between
productivity and both exports and investment with causality running unidirectionally
from exports and from investment to productivity in the long run. Additionally an
indirect long run as well as short run impact of R&D expenditure to productivity
through investment was confirmed. Moreover the US GDP growth was also found to
favor productivity improvements. Finally the real exchange rate was found to gain an
appreciating momentum when investment was over the steady state. Results from the
second model were congruent with those from the first with an additional finding that
the real exchange rate positively affects output in the long run. In general this paper
advocates for the export-led and investment-led growth but notifies that those
hypotheses can only partly construe the developing process of the Chinese economy.

30
Hatemi and Irandoust (2010) attempted to explore the exports-growth nexus
for Greece, Ireland, Mexico, Portugal and Turkey. In that context, annual data for the
period 1960-1997 for real output and real exports – taken at their logarithmic form –
were gathered for all countries. In order to determine the order of integration of the
series, the authors resorted to the KPSS and to the Perron testing procedures. Results
indicated that all series were integrated of order 1, that is I(1). Next, following the
methodology for causality testing that Toda and Yamamoto proposed, which uses a
modified WALD test statistic for restriction testing on a VAR model. Results
indicated that export-led growth was the case for Ireland and Mexico, growth-led
exports was the case for Portugal, whereas a causal link between the variables could
not be confirmed for Greece and Turkey.
Awokuse (2011) elaborated on a paper that attempted to shed light on the
fitness of the export-led growth hypothesis for 3 transition economies; Bulgaria, Chez
Republic and Poland. For that purpose he took into account an augmented production
function where real GPD growth was regressed on real gross capital, labor, real
exports and real imports with all variables considered in natural logarithmic form. The
data set comprised quarterly observations covering the following periods: 1994:1-
2004:3 for Bulgaria, 1993:1-2002:4 for Chez Republic and 1995:1-2004:2 for Poland.
Initially all variables were subjected in the ADF and KPSS testing procedures
for stationarity checking and results indicated that all were integrated of order 1. Next,
the Johansen cointegration test was applied and indicated cointegration among the
variables in the system. In effect, Granger causality testing was carried out in the
context of an error correction model (ECM). Results – tested at the 5% level of
significance – indicated a feedback relationship between exports and growth for the
case of Bulgaria, unidirectional causality running from exports to output for Chez
Republic and no causality for Poland.
The study of Tiwari and Mutascu (2011) gauged the nature of the export-led
and FDI-led growth nexuses for the 23 developing Asian countries. In the context of
an extended production function where output was determined by gross capital
formation, labor force, foreign direct investment and exports, they collected data
spanning the period 1986-2008 for each country for the variables considered. The
model was also re-specified to account for non-linearities in FDI and exports. To that
end, the Hausman test for selection between a fixed-effects and a random-effects

31
model was carried out and results recommended the adoption of a random-effects
model for conducting the analysis.
Moreover, the random-effects model was also considered as including fixed
period-specific effects, random period-specific effects and a first order autoregressive
scheme. Estimation results pinpointed that both FDI and exports are countenancing
growth for the selected panel but the positive and significant effect of exports only in
the case were non-linearities were considered suggested that an export-led growth
strategy was a more feasible option for the panel of selected Asian countries, at least
on initial development stages.
A re-examination of the export-led growth hypothesis for the Asian Four Little
Dragons was attempted by Tang and Lai (2011). The leg-work employed both a
bivariate framework in the context of which real GDP and real exports were
harnessed and a trivariate model where the real exchange rate was also considered.
Results from the ADF and KPSS tests revealed that all variables were integrated of
order 1, that is I(1). Furthermore, results from the application of the Johansen test for
cointegration suggested cointegration in the bivariate framework for all countries
except for Taiwan whereas in the trivariate model constructs were found to be
cointegrated for all countries – with results derived at the 5% significance level -.
Effectively, the Toda and Yamamoto causality testing procedure was
performed and results indicated bilateral causality only for Hong Kong and Singapore
– and unilateral causality from GDP to exports for the rest - in the bivariate model but
for all countries in the trivariate model suggesting initial model mispecification.
Finally, in order to assess the stability of the export-growth relationship the rolling
regression procedure was added to the MWALD causality test and results pointed
towards an instable relationship.
Table 1 below presents a summary of the literature reviewed for this
dissertation that succinctly quotes the year of elaboration, the author or authors, the
sample period considered and the examined country or host of countries, the model
adopted, the methodology followed in order to conduct the research and the empirical
findings of each paper.

32
Table 1. Literature Review Summary
Literature Review / Chronological Order
A/A Year Author/Authors Sample Model/Variables Methodology Conclusions
1 1967 Robert F. Emery Annual data for 50 countries over
the period 1953 through 1963
Real GNP, exports and/or
current account earnings the
last 2 variables deflated by the
US wholesale price index with
all variables considered in
their growth rates
Simple OLS The most important finding of this paper
was that higher (lower) rates of economic
growth tend to be associated with higher
(lower) rates if export growth, with a rule
of thumb that for every 2,5 percent
increase in exports, per capita real GNP
increases by 1 percent
2 1973 Raymond Lubitz Panel data: 1954-1969 for 11
leading manufacturing exporters,
Belgium, Canada, France,
Germany, Italy, Japan,
Netherlands, Sweden, Switzerland,
UK and US.
Dependent variable rate of
growth of GNP was run
against the rate of growth of
exports and investment ratio
with equations in which the
rate of growth of
manufactured exports was
used as a proxy for the exports
variable.
Simple OLS The statistical association between exports
and growth is being confirmed but not the
hypothesized export-led mechanism. The
results are not conclusive but they do
suggest that exports may be the
handmaiden rather that the engine of
growth.
3 1978 Bela Balassa Annual data 1960-1973 for 11
developing countries: Korea,
Singapore, Taiwan, Israel,
Yugoslavia, Argentina, Brasil,
Colombia, Mexico, Chile and
India. The sub-periods 1960-66
and 1966-73 were also considered
in order to account for shifts in
trade policy
Total exports and GNP,
manufactured exports and
manufactured output, foreign
and domestic investment and
labor
Spearman rank Correlation,
Simple OLS
Empirical results indicated a favorable
impact of exports on economic growth
above and beyond the contribution of
domestic and foreign capital and labor

33
4 1982 Rostam M Kavoussi Time series for a sample of 73
developing countries for the period
1960-1978
Production function where the
real growth rate of GNP was
regressed on a constant, the
real growth rates of capital
stock and labor force and the
real growth rate of exports
Simple OLS Export expansion has a positive and statistically
significant effect on income growth for the total
country sample with the relationship being
stronger for middle-income countries. The
composition of exports plays a critical role on
the magnitude of the effect of exports to income
in middle-income countries only, suggesting
that as an economy advances it should focus on
exports of manufactured goods
5 1986 Peter C.Y. Chow Panel data: 1960-1980 for nine
newly industrializing countries:
Argentina, Brazil, Hong-Kong,
Israel, Korea, Mexico, Singapore,
Taiwan
Output of manufacturing
industries regressed on past
and future values of exports of
manufactured goods
Sims bivariate causality
testing technique
Test results suggested indicated
bidirectional causality for 6 countries,
export-led manufacturing output growth
for Mexico, whereas no causality was
reported for Argentina
6 1987 Ali F. Darrat Panel data: 1955-1982 for the Four
Asian tigers: Hong-Kong,
Singapore, South Korea, Taiwan
Real GDP growth regressed on
a constant, current and lagged
exports growth
White‟s test for the direction
of causation in single
equation models
Export-led growth for Korea, no causality
for Hong-Kong, Singapore, South Korea,
Taiwan
7 1989 Mohsen Bahmani-Oskooee,
Hamid Mohtadi and Ghiath
Shabshigh
Annual data for 20 least developed
countries (LDCs) with the period
of analysis ranging from 24 to 37
years
Growth rate of real GDP in
1975 prices for each country
and growth rate of real exports
Series stationarity testing
according to Hsiao, Hsiao‟s
Granger-Akaike synthesis for
causality testing
Positive (negative) causality from exports
to growth in 5 (3) countries, Positive
(negative) causality from growth to
exports for 4 (1) counties, bidirectional
causality between exports and growth for
Korea and Thailand, no causality for the
rest of sample countries
8 1991 Jaleel Ahmad & Andy CC. Kwan Pooled time series and cross-
section observations for 47 African
countries over the period 1981-
1987
National income proxied by
real per capita GDP or annual
growth of real GDP and
exports proxied by total real
manufactured exports or share
of manufacture exports to total
exports
Unit-root testing for series
stationarity, Granger causality
testing procedure
No causality between exports and growth
for the host of selected countries with only
weak causality running from GPD to
exports for the subsample of 17 middle
and high-income countries

34
9 1992 Dalia Marin Time series data 1960:1 – 1987:2
for 4 OECD countries, i.e. United
States, Japan, United Kingdom,
Germany
Labor productivity regressed
on the log of exports of
manufacturing goods, OECD
output at constant prices the
log of labor productivity and
the log of the terms of trade
Augmented Dickey Fuller
Test for series integration,
Durbin-Watson and Dickey-
Fuller Cointegration Test,
Granger no-causality Test
Exports, productivity and the terms of
trade share common trends, i.e. they move
together in the long run in all countries
except for the UK. Furthermore, exports
Granger-cause productivity in all 4
countries. Therefore, the hypothesis of
export-led growth cannot be rejected for
the examined countries
10 1992 Les Oxley Time Series 1865-1985 for
Portugal
Log of real GDP regressed on
log of real exports and vice
versa
Test for series stationarity,
Johansen test for
cointegration, Error
correction model for Granger
causality testing
The evidence finds no support for the ELG
hypothesis but rather the reverse, ie that
income growth spurs exports
11 1994 Jim Love Time series for 20 developing
countries
-1960-1990 for Colombia, Ecuador, El
Salvador, Ghana, Guatemala, Guyana,
Honduras, Jordan, Malawi, Mauritius,
Pakistan, Paraguay and Sri Lanka
-1961-1990 for Ethiopia
-1960-1988 for Zambia
-1960-1986 for Ivory Coast
-1963-1990 for Bolivia, Brazil, Papua
Nea Guinea
-1964-1990 for Kenya, Siera Leone
1st
model: Real income growth
(real export growth) regressed
on real export growth (real
income growth)
2nd
model: Real income
growth (government
expenditure) regressed on
government expenditure (real
income growth)
Hsiao 2 stage causality
procedure, Granger causality
test (Akaike‟s Final
Prediction Error)
Overall, this study lends only weak
support to the exports as an engine of
growth hypothesis. Export-led growth in
10 countries, growth-led exports in 4
countries, no causality in 6 countries, in
general the results obtained are highly
sensitive to variable definition
12 1996 Philip M. Bodman 2 small, open developed
economies, Australia & Canada
Log of total labor productivity
(total output per employee) and
log of labor productivity in the
manufacturing sector
(manufacturing output per
employee) regressed on log of
total exported goods & services
and total exports of manufactured
goods respectively
ADF and Phillips & Perron
tests for series stationarity,
Johansen test for
cointegration, Hansen‟s test
for parameter stability, Vector
Error Correction Model
(VECM) for Granger
causality testing
Exports are cointegrated with labor productivity
directly and exhibit a long-run equilibrium
relationship for both examined countries.
Exports Granger cause economic growth
although the quantitative effect of the (short-
run) relationship does not appear to be large.
Causality from productivity to the export sector
is rejected at the 95% level for both countries

35
13 1996 John Thornton Time Series 1895-1992 for Mexico Log of real GDP regressed on
log of real exports and vice
versa
Augmented DF test for series
stationarity, Johansen test for
cointegration, ECM model for
Granger causality testing
Significant and positive Granger-causal
relationship running from exports to
economic growth in Mexico over the long
term
14 1996 Irene Henriques & Perry
Sadorsky
Two subsample time series: 1877-
1945, 1946-1991 for Canada
Real Canadian GDP, real
Canadian exports and real
Canadian tt (terms of trade)
Vector Autoregression (VAR)
model, Granger causality test
Real Canadian GDP, exports and terms of
trade are cointegrated in a long run steady
state while a one-way Granger causal
relationship exists in Canada whereby
changes in GDP precede changes in
exports
15 1998 Jordan Shan & Fiona Sun Monthly seasonally adjusted data
over the period 1978:5-1996:5 for
China
Six variable VAR model
(production function) where
industrial output is regressed
on exports, energy
consumption, labor force,
imports and capital
expenditure
Augmented Dickey Fuller &
Phillips-Perron Tests for
series integration, Toda &
Yamamoto Granger no-
causality test
The results indicate bidirectional causality
between exports and real industrial output
in China because a feedback effect was
found within the VAR system. In effect
exports is the engine of growth but in
tandem growth is also the engine of
exports in the case of the Chinese
economy
16 1998 Jordan Shan & Fiona Sun Quarterly and seasonally adjusted
Australian observations during
1978:3-1996:3
VAR model where Australian
manufacturing output growth
(proxy for real Australian
GDP growth) is regressed on
exports growth, growth of
total persons employed,
growth of imports and gross
fixed capital expenditure
Test for unit-roots in variable
time series, Vector
Autoregression Model
(VAR), Toda & Yamamoto
Granger no-causality
methodology that employs an
(ECM)
No evidence was found for the export-led
growth hypothesis in Australia whereas
when applying a longer lag structure there
is evidence of a one-way Granger
causality running from manufacturing
growth to exports growth. More
specifically, the results indicate a one-way
causality from industrial growth to GDP
growth with a one year time lag

36
17 1999 Urvashi Dhawan, Bagala Biswal Time Series 1961-1993 for India Real GDP regressed on real
exports and terms of trade
Johansen & Juselius
maximum likelihood
procedure for cointegration,
ECM for Granger Causality
Tests
There is only one long-run equilibrium
relationship among the three examined
variables. GDP and Terms of Trade (Tot)
Granger cause exports in the short as well
as in the long run. Short-run causality
from exports to GDP
18 1999 Judith A. Giles & Cara L.
Williams
Paper outlining empirical
studies/papers on ELG: 57 cross
country studies covering the period
1963-1998 and 106 time series
studies covering the period 1972-
1998
Various settings are being
specified across the examined
papers, with the bulk of leg-work
focusing predominantly at the
causality between real export
growth (or real exports of some
economy sector) and GDP growth.
Furthermore variables such as
terms of trade, investment ratio
and country openness seem to play
an indirect / pivotal role in the
interaction between export growth
and GDP growth
ADF Test for series
stationarity, Error Correction
Models (ECM), Impulse
Response Functions (IRF),
Forecast Error Variance
Decompositions (FEVD),
Granger causality.
High levels of economic growth are
significantly associated with high levels of
export growth in cross section data, results of
the cointegration tests crucially depend on the
assumed deterministic trends in the system, the
conclusions from the cointegration pretest and
noncausality test are sensitive to the lag order,
bottom line: expanding or contracting foreign
trade can have an impact on growth but the
relationships between foreign trade and growth
are varied and complex
19 2004 Konya Laszlo Panel Data 1960-1998 for 25
OECD Countries
Logarithms of GDP regressed
on logarithm of exports and an
auxiliary construct namely the
logarithm of openness to trade
defined as the proportion of
total real trade flows to GDP
ADF unit root test for series
stationarity/integration, VAR
Model for causality probe
No causality in 7 countries, ELG in 4
countries, GLE in 6 countries, 2 way
causality in 2 countries and no conclusion
in 6 countries
20 2004 Melina Dritsaki, Chaido Dritsaki,
Antonios Adamopoulos
Time Series 1960-2002 for Greece Real exports (proxied by real
export revenue) regressed on
real GDP growth and Foreign
Direct Investment (FDI)
(proxied by FDI flows)
Augmented Dickey Fuller (ADF)
Test for series integration,
Johansen cointegration test
analysis, VAR ECM specification
for Granger causality testing
procedure
Bilateral relationship between exports and
economic growth, unidirectional causal
relationship between FDI and economic
growth (direction FDI => GDP),
unidirectional causal relationship between
FDI and exports (direction FDI =>
exports)

37
21 2004 Nasim Shah Shirazi & Turkhan
Ali Abdul Manap
Time Series – annual data – 1960-
2003 for Pakistan
Trivariate framework where
real output was regressed on a
constant, real exports, real
imports and a white-noise
error-term. All variables were
considered in natural
logarithmic form
ADF and PP tests for series
stationarity, Engle-Granger,
CRDW and Johansen‟s tests
for cointegration, Toda &
Yamamoto‟s Granger
causality testing procedure
The Export-led growth but not the growth-
led exports, is the valid hypothesis for
Pakistan. Output and import growth are
interrelated in a feedback relationship
whereas no causality was traced for the
relationship between imports and exports
22 2005 Panayiotis A. Reppas, Dimitrios
K. Christopoulos
Panel data 1968-1999 for 22
developing countries
Real GDP (real exports)
regressed on real exports (real
GDP), investment share, and
country size (population)
Test for unit-roots, Pedroni‟s
Panel Cointegration Test,
Fully Modified OLS
appropriate for heterogenous
cointegrated panels
There is a positive long-run relationship
between export and output growth for the
majority of examined countries. For these
countries growth-led exports theories could find
support. For the remaining countries a
statistically significant relationship between
exports and output could not be established.
Furthermore, panel results indicate a positive
relationship between the investment ratio and
the level of exports. Finally country size seems
to exert a negative effect on export growth
23 2005 Mohsen Bahmani Oskooee,
Claire Economidou, Gour
Gobirda Goswami
Panel data: Time Series 1960-1999
for 62 Developing Countries
Log of Real output (GDP)
regressed on logs of real
exports, real imports, gross
capital formation and country
employment of labor
Panel Unit Root Tests, Panel
Cointegration Technique,
Granger or Sims causality
When exports are used as dependent
variable in the regression analysis, there is
evidence of cointegration, thus, a long-run
relationship among the variables of the
model, however cointegration disappears
when output is used as dependent variable.
Support of Growth-Led Exports (GLE)
24 2005 Jim Love & Ramesh Chandra Time Series:
- 1950-1998 for India
- 1964-2000 for Nepal
- 1965-1997 for Sri Lanka
- 1970-2000 for Pakistan
- 1973-2000 for
Bangladesh
- 1977-2000 for Maldives
- 1980-1997 for Bhutan
real exports growth
Cointegration and Error
Correction Modelling
Real exports and real GDP are cointegrated
only in Bangladesh and Bhutan. While India,
Nepal and Maldives are cases of export-led
growth, Bangladesh and Bhutan show the
opposite result of growth-led exports. In
Pakistan and Shri-Lanka the data failed to
detect any causality in either direction. Thus the
results are quite mixed and do not give any
overwhelming support to the export-led growth
thesis

38
25 2005 Yong U. Glasure & Aie-Rie Lee Time Series (quarterly) 1973:1 to
1994:4 for Korea
Five variable vector
autoregressive (VAR) and vector
error correction (VEC) models
where real growth is regressed on
real exports, real exchange rate,
real money supply and real
government spending
Augmented Dickey-Fuller
Test for unit root testing,
Johanson‟s test for
cointegration of series, Vector
Error Correction Model for
Granger causality testing
Support of GLE since findings suggest
that economic growth Granger causes
export growth in the full sample, however,
when the VEC models are used,
bidirectional long-run causality is detected
between exports and income growth
26 2006 Titus O Awokuse Panel Data
-Jan 1993-Apr 2002 for Argentina
-Jan 1994 –Apr 2002 for Columbia
-Jan 1990-Apr 2002 for Peru
real gross capital formation as
proxy for capital, labor force,
real exports and real imports
Augmented Dickey Fuller and
Kwiatkowski, Phillips, Schmidt
and Shin Tests for unit-root
testing, Johansen‟s trace and
maximal eigenvalue tests for
cointegration based on a VAR,
Error Correction Model (ECM)
for Granger Causality Test,
Generalized Impulse Response
Functions to identify the structure
of VAR innovations
For Argentina and Columbia the study found
empirical evidence in support of a bidirectional
causal relationship between imports and GDP
growth whilst in the case of Peru there is
evidence in support of import-led growth (ILG)
27 2006 Jang C. Jin, Y.C. Shih Quarterly data over the period
1973:1-1993:2 for the 4 Little
Dragons, i.e. Hong Kong,
Singapore, South Korea and
Taiwan. The period 1973:1-1976:1
is used as pre-sample data to
generate the lags in the VAR and
the model is estimated over the
period 1976:2-1993:2
Five-variable autoregressive
model: real exports of goods, real
gross domestic product, real
exchange rate, world commodity
price level for exports used as a
proxy for foreign price shocks,
industrial production index for all
industrial countries used as a
proxy for foreign output shocks
Test for unit-root testing,
Variance decompositions
(VDC) and impulse response
functions (IRF) for analyzing
the short-run dynamic
relationship, Monte Carlo
simulation procedure
The results are at odds with the export-led
growth hypothesis but the short-run results
appear consistent with the feedback model
in which export promotion and economic
growth reinforce each other in the process
of economic development in the Four
Little Dragons
28 2006 K. A. Al Mamun & H.K. Nath Quarterly data from 1976:1 to
2003:3 for Bangladesh
Industrial production regressed
on exports of goods and/or
services
Test for unit-roots, Engle-
Granger test for cointegration,
specification for Granger-
causality testing(ECM)
While the analysis suggests that there is a
positive long-run equilibrium relationship
between exports and industrial production,
there is no evidence of short-run causal
relationship between these two variables.
Furthermore the long-run causality seems
to run from exports to industrial
production

Papadopoulos Theodoros - 'The Exports-Growth Nexus. An Econometric Investigation for Greece.'

Papadopoulos Theodoros - 'The Exports-Growth Nexus. An Econometric Investigation for Greece.'

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Papadopoulos Theodoros - 'The Exports-Growth Nexus. An Econometric Investigation for Greece.'