Export and Economic Growth in Select South Asian Countries: Causality Analysis Based on Granger Test & VECM

Abstract

Over the past thirty years, many developing countries have adopted export promotion as their development policy. The export-led growth approach encouraged countries to focus on production for exports. After the miraculous performance of the East and South East Asian countries, the South Asian countries also shifted their strategy in favour of export oriented policies. The present study analyzed the export-led growth hypothesis in select South Asian countries namely Bangladesh, India, Pakistan, and Sri Lanka by using unit root, cointegration, vector error correction model, and Granger causality test. Time series data for exports and imports of goods&services and gross domestic product (GDP) per capita were taken for the period from 1980-2012 from The World Bank's world development indicators. The study concluded that export-led growth hypothesis was valid for Bangladesh and Sri Lanka only in the long run. For India, the study found evidence of export-led growth hypothesis, particularly for the short run. No short run and long run relationship was found for Pakistan. The VECM results for imports and GDP per capita showed that imports significantly caused GDP per capita only in Bangladesh, but no long run causal relationship was found from GDP per capita to imports. The results of the Granger causality test do not show any causal relationship between imports and GDP per capita except for Pakistan, in case of which there is unidirectional causality from GDP per capita to imports.