Page 24 - IILMGSM Journal_Management Perspective

ntries, as part of domestic production demanded
by foreign buyers. In the empirical analysis, however,
this direct effect must be controlled for. The reason
is that the export-led growth hypothesis, in its
original form, predicts that exports have an indirect
growth effect that goes beyond the mere change in
export volume an effect on output through
productivity.
The potential impacts of export-led strategy in the
growth process of different economies have long
been recognized by the policy makers. The Export-
Led Growth Hypothesis (ELGH) postulates that
export expansion is one of the key determinants of
economic growth. As per the hypothesis, policies
related to export stimulation, leads to economic
growth. Export-expansion acts a catalyst for output
growth both directly, as well as indirectly through
efficient resource allocation, greater capacity
utilization, exploitation of economies of scale, and
stimulation of technological improvement due to
foreign market competition. In the light of the above
facts, the present paper attempts to find out whether
the export- led growth mechanisms is true with
respect to India or not. The broad objective of this
study is to investigate the causal relationship between
exports and economic growth for the period of 1990-
91 to 2011-12, in the context of India. If the causality
runs from export to GDP, which implies that exports
oriented policies contribute to the economic growth.
On the other hand, causality running from output to
export, which implies GDP growth, promotes
exports.
Literature Review
A vast body of literature is available on the empirical
examination of the role of export performance in the
economic growth process. The earlier studies used
simple correlation coefficient between export and
economic growth to verify the association. They have
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found some association between export and output
(Emery, 1967; Kravis, 1970; Bhagwati, 1978;
Krueger, 1978). Some studies like (Balassa, 1978;
Tyler, 1981; Feder, 1982; Ram, 1985) examined the
relationship between exports and output using the
ordinary least square (OLS) regression on cross-
section data growth within a neo-classical production
function framework. Other country-specific studies
like (Jung and Peyton, 1985; Sung-Shenet al., 1990;
Bahamini-Oskooeeet al., 1991) examined the
causality between export growth and economic
growth using Granger or Sims causality tests. There
are fair amount of literature on the empirical
investigation of the export led growth (ELG)
hypothesis as well as investigations using Granger
(1969) causality.
In one of the most recent empirical studies, Jin
(2002) examines the export-led growth hypothesis
at the provincial level in the framework of a two-
and four-variable autoregressive model, using data
on the four largest Korean provinces. Both bivariate
and multivariate models are generally supportive of
the existence of a Granger causal ordering from
exports to growth, although a feedback effect in the
opposite (from growth to exports) direction is also
apparent.
Serletis (1992), Henrique and Sadorsky (1996),
Bahmani-Oskooee and Alse (1993), Ghataket al
(1995) and Nidugala (2001) provide fairly robust
evidence in favour of the ELG hypothesis. Most of
the time series studies employ the Granger method,
while only a few studies combine Granger’s test with
the Akaike’s Information Criterion (AIC).
There are a few studies on this subject for the case
of India as well. Dhawan and Biswal (1999)
investigate the ELG hypothesis using a vector
autoregressive (VAR) model for the period 1961 to