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Causality between Exports and Economic Growth in South Africa: Evidence from Linear and Nonlinear Tests

Ahdi Noomen Ajmi, Goodness Aye (), Mehmet Balcilar and Rangan Gupta ()
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Goodness Aye: Department of Economics, University of Pretoria

No 201339, Working Papers from University of Pretoria, Department of Economics

Abstract: This paper investigates the dynamic causal link between exports and economic growth using both linear and nonlinear Granger causality tests. We use annual South African data on real exports and real gross domestic product from 1911-2011. The linear Granger causality result shows no evidence of significant causality between exports and GDP. The relevant VAR is unstable, which undermines our confidence in the causality result identified by linear Granger causality tests. Accordingly we turn to the nonlinear methods to evaluate Granger causality between exports and GDP. We use both Hiemstra and Jones (1994) and Diks and Panchenko (2005) nonlinear Granger causality tests. For the Hiemstra and Jones (1994) test, we find a unidirectional causality from GDP to exports. However, using the Diks and Panchenko (2005) test, we find evidence of significant bi-directional causality. These results highlight the risk of misleading conclusions based on the standard linear Granger causality tests which neither accounts for structural breaks nor uncover nonlinearities in the dynamic relationship between exports and GDP.

Keywords: Exports; economic growth; causality; linear; nonlinear (search for similar items in EconPapers)
JEL-codes: C14 C32 F43 O40 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-afr and nep-fdg
Date: 2013-08
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Journal Article: Causality between exports and economic growth in South Africa: evidence from linear and nonlinear tests (2015) Downloads
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