Trade Liberalization and Economic Expansion: A Sensitivity Analysis

George A. Vamvoukas
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George A. Vamvoukas: Athens University of Economics and Business

South-Eastern Europe Journal of Economics, 2007, vol. 5, issue 1, 71-88

Abstract: The relation between trade liberalization and economic expansion is a controversial topic in economics. Despite the differences in their econometric techniques, various authors have tried to answer the question: What is the mechanism by which higher rates of growth of exports are associated with higher growth rates of real output? This paper re-examines the export-led growth hypothesis employing data from four European countries, Greece, Ireland, Portugal and Spain. For a long period of time these countries experienced similar macroeconomic features and constituted a competitive group in the European Union. The interesting aspect of the econometric framework adopted in this paper is that Granger multivariate tests based on error correction modeling are examined for robustness using impulse response functions. Such an empirical procedure will, it is hoped, provide insights into the appropriate long-run strategy that should be applied by Greece, Ireland, Portugal and Spain, if they pursue the increase of exports in order to enhance the level of economic growth. The sensitivity analysis of this paper provides evidence for the export-led growth hypothesis for Ireland but the hypothesis is rejected for the other three countries.

Keywords: Export-led growth hypothesis; error correction modeling; multivariate causality (search for similar items in EconPapers)
JEL-codes: C32 F14 F43 (search for similar items in EconPapers)
Date: 2007
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