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ort-Led Growth Mechanism Findings and Discussion
There are several ways in which exports can affect
productivity. First, exports can provide the foreign Table:1 ADF test statistic (for unit root)
exchange to finance imports that incorporate
knowledge of foreign technology and production Variables ADF test Value
know-how, thereby promoting cross-border Exports 5.345*
knowledge spillovers (Grossman and Helpman1991). GDP 2.524*
Second, exports can increase productivity by
concentrating investment in the most efficient sectors *Significant at 95% level of confidence
of an economy, those in which the country has a
comparative advantage (Kunst and Marin1989). Calculated ADF values of both the variables are more
Third, since combining the international market with
the domestic market facilitates larger scale than the critical value and are significant at 95% level
operations than does the domestic market alone, an
expansion of exports allows countries to benefit from of confidence (table 1).Therefore both variables are
economies of scale (Helpman and Krugman 1985).
Fourth, and perhaps most importantly, the export stationary and are co integrated. For the granger
sector may generate positive externalities on the non- causality test, the null hypothesis is that exports don’t
export sector (Feder 1983). Verdoorn’s law was an granger cause GDP. We have regressed ‘exports’ on
attempt to quantify the relationship between the rate lagged values of ‘exports’ and ‘GDP’ and the
of growth of output and the rate of growth of coefficients of the lag of ‘GDP’ are statistically
productivity. This law explains that faster growth in
output increases productivity due to increasing significantly different from 0, thus the null hypothesis
returns. Thus an economy with a rapid increase in cannot be rejected and it can be argued that ‘GDP’
demand will also experience rapidly increasing Granger-cause ‘exports’.
productivity. If money wages do not also rise by
enough to offset the productivity increase, costs will Similarly GDP was regressed on lagged values of
fall and the country’s exports will also grow fast GDP and exports. The lags of exports are also
because of their competitiveness. This increase in significantly different from 0. It implies that GDP
exports in turn will stimulate demand and output doesn’t granger cause exports.
growth, and the circle is virtuously closed through
further productivity gains. Moreover, export growth But, it can also be seen in table 2 that F- statistics
ensures that balance of payments difficulties will not for export-led growth is less significant at 95 percent
cause a slowing of the growth rate. For a given level of confidence, while F-statistics for growth-
country, an expansion of the export sector may cause led export is significant at 95 percent level of
specialization in the production of export products, confidence (table 2). Thus, results indicate
which increase the productivity levels, and increase bidirectional causality between exports and
the level of skills in the export sector. This GDP. However the values are much significant in the
Productivity change may then lead to expanded case of causality from GDP to Export. Thus it
exports and output growth. may be concluded that economic growth causes
expansion in exports.
Table 2.Granger Causality Test
Direction of Causality Calculated F Value
Exports GDP 0.4291
GDP Exports 0.7671
(27)
There are several ways in which exports can affect
productivity. First, exports can provide the foreign Table:1 ADF test statistic (for unit root)
exchange to finance imports that incorporate
knowledge of foreign technology and production Variables ADF test Value
know-how, thereby promoting cross-border Exports 5.345*
knowledge spillovers (Grossman and Helpman1991). GDP 2.524*
Second, exports can increase productivity by
concentrating investment in the most efficient sectors *Significant at 95% level of confidence
of an economy, those in which the country has a
comparative advantage (Kunst and Marin1989). Calculated ADF values of both the variables are more
Third, since combining the international market with
the domestic market facilitates larger scale than the critical value and are significant at 95% level
operations than does the domestic market alone, an
expansion of exports allows countries to benefit from of confidence (table 1).Therefore both variables are
economies of scale (Helpman and Krugman 1985).
Fourth, and perhaps most importantly, the export stationary and are co integrated. For the granger
sector may generate positive externalities on the non- causality test, the null hypothesis is that exports don’t
export sector (Feder 1983). Verdoorn’s law was an granger cause GDP. We have regressed ‘exports’ on
attempt to quantify the relationship between the rate lagged values of ‘exports’ and ‘GDP’ and the
of growth of output and the rate of growth of coefficients of the lag of ‘GDP’ are statistically
productivity. This law explains that faster growth in
output increases productivity due to increasing significantly different from 0, thus the null hypothesis
returns. Thus an economy with a rapid increase in cannot be rejected and it can be argued that ‘GDP’
demand will also experience rapidly increasing Granger-cause ‘exports’.
productivity. If money wages do not also rise by
enough to offset the productivity increase, costs will Similarly GDP was regressed on lagged values of
fall and the country’s exports will also grow fast GDP and exports. The lags of exports are also
because of their competitiveness. This increase in significantly different from 0. It implies that GDP
exports in turn will stimulate demand and output doesn’t granger cause exports.
growth, and the circle is virtuously closed through
further productivity gains. Moreover, export growth But, it can also be seen in table 2 that F- statistics
ensures that balance of payments difficulties will not for export-led growth is less significant at 95 percent
cause a slowing of the growth rate. For a given level of confidence, while F-statistics for growth-
country, an expansion of the export sector may cause led export is significant at 95 percent level of
specialization in the production of export products, confidence (table 2). Thus, results indicate
which increase the productivity levels, and increase bidirectional causality between exports and
the level of skills in the export sector. This GDP. However the values are much significant in the
Productivity change may then lead to expanded case of causality from GDP to Export. Thus it
exports and output growth. may be concluded that economic growth causes
expansion in exports.
Table 2.Granger Causality Test
Direction of Causality Calculated F Value
Exports GDP 0.4291
GDP Exports 0.7671
(27)
