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Is the Export-led Growth Hypothesis Valid for an Export-oriented Economy? Korean Experience

Olivia S. Jin and Jang C. Jin

Applied Economics and Finance, 2015, vol. 2, issue 4, 103-114

Abstract: The export-led growth hypothesis has been examined for the Korean economy that heavily depended on international trade. We employed a textbook-style regression model and found that export expansion had an insignificant effect on economic growth. The insignificant growth effect was robust across sample periods and model specifications. We further employed an instrumental variable (IV) for export growth and found that the causal effect was strengthened but not large enough to be statistically significant. Our results thus appear to be at odds with the findings of export-led growth in the existing literature. A separate model was estimated further for growth-driven exports, but the feedback effect of GDP growth on export expansion was also found to be small and insignificant. Perhaps, the discrepancy might be due to fancy time-series techniques used in the literature that may distort causal directions erratically.

Keywords: Export-led growth; instrumental variable; endogeneity bias; reverse causality (search for similar items in EconPapers)
JEL-codes: F4 O5 C2 (search for similar items in EconPapers)
Date: 2015
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Handle: RePEc:rfa:aefjnl:v:2:y:2015:i:4:p:103-114