Export‐led Growth and Import Compression: Further Time Series Evidence From LDCs

John Asafu‐Adjaye and Debasish Chakraborty

Australian Economic Papers, 1999, vol. 38, issue 2, 164-175

Abstract: This paper conducts tests of the export‐led growth and the import‐compression hypotheses for four less developed countries (LDCs) – India, Nigeria, Fiji and Papua New Guinea (PNG). Based on Johansen's multiple cointegration test preceded by unit root tests, we test for cointegration between real output, exports and imports. Non‐rejection of cointegration between the variables excludes the possibility of Granger non‐causality and suggests at least one way Granger causality. Real output, exports and imports are found to be cointegrated in two of the countries and the resulting error‐correction models suggest that Granger causality runs from exports and imports to real output in these cases. Exogeneity tests are conducted for exports with respect to real output. However, while the assumption of weak exogeneity is validated in two of the countries, the null hypothesis of super exogeneity is rejected. The test results therefore cast doubts on policy recommendations for the LDCs based on the export‐led growth hypothesis.

Date: 1999
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