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Trade, Investment and Growth: Nexus, Analysis and Prognosis

Kala Krishna

Pennsylvania State University - Department of Economics; National Bureau of Economic Research (NBER)

Norman R. Swanson

Ataman Ozyildirim

The Conference Board

October 1998

This paper looks at the patterns of causation between income, export, import, and investment growth for 25 developing countries. Our approach differs from previous efforts in a number of ways. First, we examine each country individually in order to allow for complete heterogeneity and properly account for the stochastic trending properties of the data. Second, we apply model selection techniques which are based on in-sample goodness-of-fit criteria and ex-ante predictive ability criteria to identify the best model for each country, and then look for evidence of reverse causation. Finally, we propose a rather novel device based on simple contingency tables which allows us to assess whether our models are capable of accurately predicting turning points in GDP growth. We find that countries with high trade exposure fare poorly in this dimension and posit that the GDP growth in such countries is best modeled using an index of global business cycle conditions, in addition to the above variables. Overall, we find that in around two thirds of the countries examined, growth is best explained by exports and/or imports. Further, and in contrast to previous findings of bi-directional causality, around 70% of the countries exhibit uni-directional causality.

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Number of Pages in PDF File: 37

JEL Classification: F43, O47

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Date posted: December 20, 1998  

Suggested Citation

Krishna, Kala and Swanson, Norman R. and Ozyildirim, Ataman, Trade, Investment and Growth: Nexus, Analysis and Prognosis (October 1998). Available at SSRN: http://ssrn.com/abstract=137248 or http://dx.doi.org/10.2139/ssrn.137248

Contact Information

Kala Krishna (Contact Author)
Pennsylvania State University - Department of Economics ( email )
523 Kern Graduate Building
University Park, PA 16802-3306
United States
814-865-1106 (Phone)
814-863-4775 (Fax)
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Ataman Ozyildirim
The Conference Board ( email )
845 Third Avenue
New York, NY 10022
United States
No contact information is available for Norman R. Swanson
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Citations:  2
Footnotes:  14

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