Export Led Growth (ELG) Hypothesis: An Empirical Investigation Among SAARC Nations

Abstract:     
In the present study Export led Growth (ELG) Hypothesis for the SAARC nations has been examined. As per the neoclassical views “growth can be achieved through ELG” and the growth records of Hong Kong, Korea, Singapore, Taiwan Malaysia and Thailand (Asia’s newly industrialized countries - NICs) are best examples. During the last three decades these NICs have approximately doubled their living standards in every ten years. China is the most recent country to join this group. China’s experience during 1980s and 1990s tends to support the argument that openness to trade is an instrument for achieving more speedy and efficient growth and better distribution of resources.

The present paper explores the relationship in between export and economic growth among SAARC nations for example Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka with the help of technique of causality and error correction mechanism. For this purpose, data relating to export and GDP for the period 198'281 to 2007-08 have been taken into account. Data regarding GDP and exports have been taken for Bangladesh, Bhutan, India, Maldives, Nepal, Pakistan and Sri Lanka in their national currencies. In the present study, data has been taken from International Financial Statistics. ADF PP, DFGLS and KPSS test have been used for the presence of unit root in exports and GDP series. CRDW test and Error Correction Mechanism on the stationary series have been applied.

India is having the highest value of descriptive statistics (for mean, median, standard deviation, maximum value and minimum value) while Bhutan is having the lowest value of descriptive statistics (for mean, median, standard deviation, maximum value and minimum value) in terms of their national currencies during the period under study. GDP Export ratio has declined in case of Bangladesh and India during the study period. In case of Bhutan this ratio has been lowest among all the SAARC nations after 1988. For the countries like Maldives, Pakistan and Sri Lanka, this ratio shows mixed trend.

As per ADF test, PP test, DFGLS test the conventional hypothesis of unit root cannot be rejected at level for the GDP and log of GDP for the countries like: Bangladesh, India, Maldives, Pakistan and Sri Lanka. DFGLS test for the GDP and log of GDP for the Bhutan and Nepal reveals the stationarity at level. ADF test, PP test and DFGLS test used in the present study suggest that the GDP and log of GDP for Bangladesh are integrated of order two. The KPSS test suggests the acceptance of no unit root hypothesis in the series of GDP and log of GDP for all the SAARC Nations at level i.e. the series can be integrated at I('7.

For the countries like Bangladesh, Maldives and Sri Lanka, ADF test reveals stationarity for exports in total and log term at first difference and first lag, while similar test shows stationarity at second difference and first lag for Bhutan. ADF test for India and Nepal depicts no unit root at first difference for export in total term and second difference for exports in log term. For Maldives and Nepal, PP test reveals stationarity for exports in total and log term at first difference and second lag, while similar test shows stationary at second difference and second lag for Bangladesh. DFGLS test for export and log of export is found stationary at second difference for Bhutan and Sri Lanka and it is found stationary at level for India during the period 1980 to 2007.

CRDW test of cointegration accepts that the export causes GDP for Maldives. As per the Error Correction Mechanism for all the countries in SAARC Region the residuals having negative sign and the coefficients for GDP and export are positive and significant excluding Maldives.

Keywords: Export, GDP, Export Led Growth Hypothesis, Unit Root Test, Cointegration, Error Correction Mechanism

JEL Classification: F10, C32

Accepted Paper Series