Trade, Investment and Growth: Nexus, Analysis and Prognosis

34 Pages Posted: 22 May 2000

See all articles by Kala Krishna

Kala Krishna

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

Norman R. Swanson

Rutgers University - Department of Economics

Ataman Ozyildirim

The Conference Board

Multiple version iconThere are 4 versions of this paper

Date Written: February 2000

Abstract

This paper looks at the patterns of causation between income, export, import, and investment growth for 39 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. Second, we apply novel 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. Our approach allows us to shed new light on at least two issues. First, we look at the incidence of causation and reverse causation between various economic variables which are commonly believed to lead economic growth and find that there is less reverse causation from income to these variables than suggested by the literature. Second, we suggest that there is a missing variable in previous work, namely an index of global business cycle conditions. We find, as expected, that countries with high trade exposure, growth rates, and investment rates tend to gain in predictive ability from the addition of such a variable.

JEL Classification: F23, O47

Suggested Citation

Krishna, Kala and Swanson, Norman Rasmus and Ozyildirim, Ataman, Trade, Investment and Growth: Nexus, Analysis and Prognosis (February 2000). Available at SSRN: https://ssrn.com/abstract=221208 or http://dx.doi.org/10.2139/ssrn.221208

Kala Krishna

Pennsylvania State University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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Norman Rasmus Swanson (Contact Author)

Rutgers University - Department of Economics ( email )

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HOME PAGE: http://econweb.rutgers.edu/nswanson/

Ataman Ozyildirim

The Conference Board ( email )

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New York, NY 10022
United States

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