Exports and Economic Growth

The paper investigates a question whether India’s exports lead to the country’s economic growth. In order to answer this, it has made use of causality as a statistical technique employing Granger, Sims and modified Sims (or Geweke-Meese-Dent) tests, to examine one-way or two-way causality in the Auto-regression where the lag lengths of the variables included are chosen by the Akaike’s FPE criterion. The paper examines the relationship between exports and economic growth in India using data for the period 1950-51 to 1991-92. The results appear to support the rejection of the null hypothesis that economic growth does not cause exports growth and vice versa. This finding is supported by modified Sims’ (Geweke et al) test, of which Granger and Sims tests are shown as special cases. It also demonstrates the validity of this finding with the use of Geweke et al’s test, even after extending the bivariate system to a trivariate by introducing imports as a linkage variable. The paper concludes by saying that it is Geweke et al’s test which performs better in causality testing, since the other two tests can be treated as special cases of this test.