Page 1 of 12

Journal for Studies in Management and Planning

Available athttp://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 03

April 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 482

On Exports and Economic Growth- Multifarious Economies Perspective

Mpho Bosupeng

University of Botswana, Botswana

bosupengmpho@hotmail.com

Abstract

Early studies on economic growth

generally concluded that most economies

are driven by exports hence forming the

basis of the export-led growth hypothesis

(ELG). Thus by implication, previous

studies document a positive relationship

between exports and economic growth

and major institutions such as the World

Bank have supported the idea of

promoting exports in Less Developed

Countries (LDC’s) in their

industrialization and economic

transformation attempts. The glitch with

the extant literature is that most empirical

analysis usually focuses on a single

economy without considering a broader

data range and multifarious economies.

This study uses data on GDP and income

accrued from exports from 1960-2013 for

13 different economies. The results of the

cointegration test show that there is a

positive long run relationship between

exports income and GDP for Brazil,

Colombia, Costa Rica, Bangladesh,

Burkina Faso, Nigeria, Australia and

Norway. However, the causality test

results astonishingly show that Argentina

and Bangladesh are the only economies

which are exports-driven hence opposing

early claims that most countries follow the

export-led growth hypothesis.

JEL Classification: F41; F43; F14; E23

Keywords: exports; Gross Domestic

Product; export-led growth; growth-driven

exports

Introduction

Since the early 1960’s policy makers and

central banks have developed great

interest in the possible relationship

between exports and economic growth.

Following Konya (2006) the export-led

growth hypothesis postulates that exports

lead economic growth. The growth-driven

exports hypothesis on the other hand

proposes that economic growth Granger

causes exports. While most studies do not

focus on diversification, Klinger &

Lederman (2011) held that economic

diversification raises economic growth but

only up to a point. Market failures have

been found to reduce private investments

in exports production thus hampering the

infant stages of the production process.

Evidence bought forth by Klinger &

Lederman (2011) has shown that exports

discoveries are correlated with the course

of economic development. However,

countries are generally not forward in

terms of economic diversification because

there are possibilities of imitation which

can drastically affect exports sales. While

most economies which export minerals

such as Botswana have focused on

economic diversification and escaping the

natural resource curse repercussions, Imbs

& Wacziarg (2003) verified that economic

development should also encompass the

diversification of employment across

industries.

It is nonetheless vital for central banks to

have an accurate and timely assessment of

Page 2 of 12

Journal for Studies in Management and Planning

Available athttp://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 03

April 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 483

GDP growth rate. This is critical for

providing a reliable and early analysis of

current economic performance rates

(Antipa et al 2012). In Asia, economic

growth has been robust considering

economies like India and China. The

Asian region key to such vigorous

economic transformation is that most of

the economies promoted exports to propel

economic growth. Countries which used

this fundamental were Korea, Taiwan,

Hong Kong, Singapore, Malaysia,

Thailand, and more recently economic

giants of China and India. This robust

economic success was later promoted by

the World Bank (1987). The World Bank

(1987) addressed that exports promotion

strategy was the best option for Less

Developing Countries (LDC’s) attempting

to industrialize and transform into

advanced economies. It is however

important to note that even though exports

promotion has some benefits Tang et al

(2015) reported that economies which are

overly dependent on exports for growth

and development are highly vulnerable to

financial crisis handicaps. The situation

worsens for economies which are mineral

exporters such as Botswana. During the

2007-2008 global financial crises,

Botswana’s mineral exports sales

particularly diamonds hit rock bottom

sales creating social and economic ills

such as unemployment for the government

to address.

This paper is an extension to the extant

literature by focusing on exports income

and GDP dynamics for 13 different

economies which are Argentina, Brazil,

Colombia, Costa-Rica, Bangladesh,

Botswana, Burkina Faso, Nigeria, India,

Japan, Australia, Norway and Chile. The

glitch with previous studies is that they

generally focused on a single economy

and do not examine a broader data set.

This paper extends Konya (2006) and

covers the period 1960-2013 to examine

long run statistical drifts between exports

income and GDP for the economies under

examination.

Literature Review

Previous studies on economic growth

generally hold that most economies are

exports-driven. Thus Konya (2006)

proposed that under the export-led growth

(ELG), exports lead economic growth.

Konya (2006) investigated the possibility

of Granger causality between the

logarithms of real exports and real GDP

for 24 selected OECD countries from

1960-1997. The scholar introduced a new

panel data approach which is based on

SAR systems of equations and Wald test

with country-specific bootstrap critical

values. In the analysis, two dynamic

models were applied. Konya (2006)

further used the bivariate (GDP-exports)

model and a trivariate (GDP-exports- openness) model with and without linear

trend. In general, the analysis focused on

one period causal relation between exports

and GDP. The results were not consistent

as they revealed one-way causality from

exports to GDP in Belgium, Denmark,

Iceland, Italy, New Zealand, Spain, and

Sweden. There was also one-way

causality running from GDP to exports in

Austria, France, Greece, Japan, and

Mexico Norway, and Portugal. However,

there was two-way causality between

exports and economic growth in Canada,

Finland, and the Netherlands. While in the

case of Australia, Luxembourg,

Switzerland, the UK and USA there was

no evidence of causality in either

direction. The diversity of these results

has made policy makers and scholars to

show greater interest in the dynamic

relationship between exports and

economic growth. The dilemma is, should

countries then promote exports to propel

economic growth or should they focus on

economic growth with the hope that it will

propel export production?

Page 3 of 12

Journal for Studies in Management and Planning

Available athttp://internationaljournalofresearch.org/index.php/JSMaP

e-ISSN: 2395-0463

Volume 01 Issue 03

April 2015

Available online: http://internationaljournalofresearch.org/ P a g e | 484

Following Konya (2006) the inconsistent

results present a challenge for policy

makers and central banks. However,

increased exports promotion may possibly

promote the importation of high quality

products and technologies which in turn

may have positive impact on

technological change, labor productivity,

and eventually the nation’s overall

production. However, if we let economic

growth propel exports production, we will

be following the growth-driven exports

hypothesis which is founded on the idea

that economic growth induces trade flows.

Following Konya (2006), the GDE

hypothesis has several economic benefits

such as the creation of comparative

advantage in certain areas leading to

further specialization and production of

exports.

Konya (2006) however cautioned that it is

possible to witness no relations at all

between economic growth and exports. In

addition to the literature, Chaudhry &

Bukhari (2013) highlighted that trade is a

crucial component of Pakistan’s economy

and trade as a percentage of the GDP has

risen from approximately 26% in 1999 -

2000 to approximately 33% in 2010-2011.

Nonetheless, a crucial component of the

Pakistan economy is the heavy reliance on

the exportation of textiles. It has been

noted well that between 60 and 70% of

Pakistan’s merchandise exports are

accounted for by the textile and garment

industry which also accounts for about

8.5% of the GDP and 38% of the total

employed force. On this notation,

Chaudhry & Bukhari (2013), created a

structural vector autoregressive model

which looks at macroeconomic factors

that impact the exportation of finished and

unfinished Pakistani textiles between 1980

and 2011. The analysis was unique

because it segregated finished textile

exports from unfinished exports. The

study found out that unfinished or low

value added Pakistani textile exports were

positively impacted by aggregate

consumption of trading partners.

Consequently, a real depreciation of

Pakistan’s exchange rates was found to

induce temporary increases in unfinished

textile exports. Nonetheless, positive

shocks in textile exports of competitor

countries were found to induce temporary

increases in unfinished textile exports.

Notably He & Zhang (2010) reported that

after 30 years of economic transformation,

China has emerged as one of the world’s

major trading economies. Critically, even

though there is a large body of literature

pertaining to the rise of China as an

economic giant, He & Zhang (2010) noted

that there has been little analysis done on

the relationship between foreign trade

functions and China’s domestic economy.

Comparatively, many studies held that

China’s economic growth pattern has been

unbalanced and the economy has become

too export-dependent and hence increased

vulnerability to business cycle

fluctuations. Lardy (2007) revealed that

excessive reliance on net exports has been

an important factor propelling the Chinese

government to switch to a more

consumption-driven growth pattern. On

this backdrop, He & Zhang (2010) studied

the interaction between foreign trade and

domestic demand and supply on China’s

economic transformation. The paper

conducted econometric analysis on

provincial Chinese data to determine

causality between growth of foreign trade

and components of domestic. The results

implied that Chinese exports dependency

is significantly lower than implied by the

headline–exports to GDP ratio. He &

Zhang (2010) argued that the contribution

of exports to economic growth in China

came mainly from its impact on total

factor productivity rather than from the

multiplier effect from a demand

perspective. In contribution to the extant

literature, Limaei et al (2011) considered

the import and export of wood in Iran and