Jurnal
EKONOMI
PEMBANGUNAN
Kajian Ekonomi Negara Berkembang Hal: 89 Ae 95 EXPORTS AND ECONOMIC GROWTH:
The Causality Test for ASEAN Countries Abdul Ghafar Ismail Islamic Economics and Finance Research Group Faculty of Economics Universiti Kebangsaan Malaysia Agus Harjito Universitas Islam Indonesia Abstract This study proposes to investigate the causality between exports and economic growth in the ASEAN countries over the periods 1966 Ae2000.
The role of the export variable in the investigation of economic growth is emphasized.
Using the Johansen cointegration procedures test indicate that there is cointegration between export and economic growth in Indonesia and Singapore, while the Granger causality test shows that there is feedback or bidirectional causality between exports and economic growth only in Indonesia and Philippines.
JEL classification: C22.
F14.
F43.
Keywords: export.
economic growth.
causality test.
INTRODUCTION
There is an increasing interest in the relationship between export and economic Theoretically, it has been argue that a change in export rates could change output of production.
Export growth, therefore, is often considered to be a main determinant of the production and employment growth of an economy which is shown in Gross Domestic Product (GDP) growth (Ramos.
He suggests that the hypothesis of export-led growth (ELG) is substantiated by the following four arguments.
First, export growth leads, by the foreign trade multiplier, to an expansion of production and employment.
Second, the foreign exchange made available by export growth allows the importation of capital goods, which, in turn, increase the production potential of an economy.
Third, the volume of and the compet- ition in exports markets cause economies of scale and an acceleration of technical progress in production.
Fourth, given the theoretical arguments mentioned above, the observed strong correlation of export and production growth is interpreted as empirical evidence in favour of the ELG hypothesis.
There are three possible relationships between exports and GDP.
These are exportled growth, growth-driven exports, and the feedback of two-way causal relationship.
The exporting countries with a large share of their output grow faster than others.
The growth of exports has a stimulating influence across the economy as a whole in the form of technological spillovers and other externalities considers how export shocks can produce export-led growth (Buffie.
Jurnal Ekonomi Pembangunan Vol.
8 No.
Desember 2003 Hal: 89 Ae 95 In contrast to the export-led growth hypothesis, scholars have noted that an increase in GDP generally leads to a corresponding expansion of trade, unless the pattern of growth-induced supply and corresponding demand creates an anti-trade bias.
Recently, the most interesting economic scenarios suggest a two-way causal relationship between growth and trade.
Increased trade produces more income .
ncreased GDP), and more income facilitates more trade- the result being like a Auvirtuous circleAy.
Therefore, the aim of this paper is to forward an additional evidence on those hypotheses using the ASEAN data.
The paper is organized as follows.
the following section contains literature review.
In section 3, the methodology and the data are presented.
Section 4 presents the empirical results, and in the last section, conclusions and implications are presented.
LITERATURE REVIEW
Several recent empirical studies that use Granger-type causality tests have not been particularly supportive of a positive causal relation running from export to economic growth.
For examples.
Jung and Marshall .
run such tests on data for 37 developing countries for the period 19511981.
They found evidence of unidirectional exports to growth causality for only four Exports-lead-growth causality only appears in one country out of eight newly industrializing economics, bi-directional causality for six, and no causal link for one (Chow, 1.
Further.
Hsiao .
shown that Granger tests causality confirmed no causal relation between exports and GDP for four Asian newly industrializing economies, except Hong Kong, where unidirectional causality run from GDP to exports.
Other researchers, like Kwan and Cotsomotis .
found bi-directional causality between exports and economic growth in China for the period 1952-1988 and no causality for the sub-period 1952-1978.
Ahmed and Kwan .
found no causal link from exports to growth in cross section study of 47 African countries, and weak evidence of causality from economic growth to exports, using data for the period 19811987.
Amoateng and Amoaku-Adu .
found that there was feedback or bi-directional causality between external debt servicing, economic growth and exports of 35 African countries.
Ahmad and Harnhirun .
found that only Singapore exists a bidirectional, feedback relationship between exports and economic growth in ASEAN Thornton .
found that real exports and real GDP in Mexico over 18951992 were cointegrated and there was a significant and positive Granger-causal relationship running from exports to economic More recently.
Ramos .
reported that there was a feedback effect between exports-output growth and importsoutput growth in the Portuguese economy over 1865-1998.
The purpose of this paper is to investigate the relationship between exports and economic growth (GDP) in the ASEAN countries, namely Indonesia.
Singapore.
Malaysia.
Thailand, and the Philippines over the period 1966-2000.
These countries are employed because, like other countries in Asia, they have pursued aggressive export promotion policies and some have witnessed rapid economic growth.
In order to test for the existence of a long run or trend relationship between exports and GDP, the theory of causality and cointegration developed by Engle and Granger .
and Johansen .
will be applied.
METHODOLOGY AND DATA
This study employs EngleAos and GrangerAos causality test to analyse the relationship between exports and economic growth (GDP growt.
Engle and Granger .
show that when time series are cha- Export and Economic Growth: The Causality Test for ASEAN Countries (Abdul Ghafar Ismail & D.
Agus Harjit.
racterized by non-stationarity, cointegration is particularly appropriate statistical technique.
If two series are integrated of order 1, namely I.
, then Granger causality must exist in at least one direction in the I.
In the case where two series are cointegrated I.
, a Vector Autoregressive (VAR) model can be constructed in terms of the levels of the data or in terms of their first differences with the addition of an error correction term to capture the short-term dynamics and to reduce the possibility of identifying spurious causality.
To test the cointegration and causality, the procedure involves three steps.
First, we test the order of integration of the natural logarithm of the levels of the real exports (X) and real GDP (Y).
This step can be done by computing the augmented Dickey-Fuller (ADF) test statistics.
ADF is used to test the presence of unit roots under the alternative hypothesis that the time series in question is stationary around a fixed time trend.
The second step is to test for cointegration using the Johansen .
maximum likelihood If cointegration exists, the either unidirectional or bi-directional Granger causality exist in at least the I.
The third step is to carry out a standard Granger causality test to know the long-run cointegrating relationship between exports and economic growth.
For valid inferences to be derived, such tests need to be undertaken on I.
Assuming the levels of real GDP and real exports are I.
nd cointegrate.
, the appropriate formulations of a Granger-type test of causality are:
lnYt A A o A EuA lnY A Eu b ln X A A .
t -i i A1 t -i i A1 Eu b A 0 should be rejected by the calcui i A1 lated F-value when X is excluded in the restricted form of equation .
If there is bim directional causality then Eu b C 0 and i A1 Eu d C 0 .
To implement the Granger i A1 causality test.
F-statistics values are calculated under the null hypothesis that in equations .
all the coefficients of bi and di = 0.
Because the results from Grangercausality test are sensitive to the selection of lag length, results are presented using the minimum final prediction error (FPE) criterion suggested by Akaike .
to determine the appropriate lag length.
This study used optimal lags for each variable.
The Fvalue is calculated as:
(ESS R A ESS u ) / m F.
, n - 2m - .
A ESS u /.
- 2m - .
where ESSR and ESSU are the sum of squared residuals for the constrained and unconstrained causality regressions respectively, n is the total number of observations and m is the number of lags per variable.
The data used in this study are annual series data for the years 1966-2000 taken from the International Monetary Fund annual reports for the years 1991 and 2001.
The series are on real exports and real gross domestic product.
lnXt A o A Eu i ln X t-i A Eud i ln Yt-i A AA t .
i A1 and At are zero-mean, serially uncorrelated random error terms.
The hypothesis that export causes economic growth, if supported by the data, should imply that null hypothesis of i A1 where Y is the growth rate of real GDP measured as ln (GDPt /GDPt-.
and X is growth rate of real export of goods and services measured as ln (Export t /Export t-.
Au t EMPIRICAL RESULTS Before testing for causality, the stationary of the variables were checked by means of Augmented Dickey-Fuller (ADF) Table 1 presents the ADF test statistics Jurnal Ekonomi Pembangunan Vol.
8 No.
Desember 2003 Hal: 89 Ae 95 for the log levels and first differences of the logs of real GDP and real exports.
From the result, all variables are non-stationary in their level form.
means the null hypothesis that the levels of the series contain unit roots cannot be Accordingly, the unit root tests are re-run on first-differenced data and the results reject the hypothesis of a unit root.
Thus, the stationary property is found in the first-differencing level of the variables.
the other words, it means that in level form the series are I.
but in first difference form they are I.
Table 1.
The ADF Results of the Unit Root Test Variables Difference Level From Indonesia Exports Economic growth (GDP) Singapore Exports Economic Growth (GDP) Malaysia Exports Economic Growth (GDP) Thailand Exports Economic Growth (GDP) The Philippines Exports Economic Growth (GDP) Note: * Significant at the 5% level.
First Table 2: Tests for cointegration between exports and economic growth using the JohansenAos procedure Likelihood 5% Critical 1% Critical Ratio Value Value Indonesia Singapore Malaysia Thailand The Philippines Note: *denotes that a test statistics is significant at the 5%, means there is cointegration between exports and economic growth.
Countries Eigenvalue Export and Economic Growth: The Causality Test for ASEAN Countries (Abdul Ghafar Ismail & D.
Agus Harjit.
Table 3: The result of GrangerAos causality test
Countries F-statistic Indonesia
LXPT E LGDP
LGDP E LXPT
Singapore LXPT E LGDP
LGDP E LXPT
Malaysia
LXPT E LGDP
LGDP E LXPT
Thailand
LXPT E LGDP
LGDP E LXPT
The Philippines LXPT E LGDP
LGDP E LXPT
Note: * denotes significant at the 5% level.
LXPT = Ln export.
LGDP = Ln Gross Domestic Product Table 2 presents the results of the Johansen cointegration test.
The figures show that this study is able to reject the null hypothesis of non-cointegration only in the case of Indonesia and Singapore, where Likelihood ratios of these countries are more than F-critical value.
In the case of other countries, there appears to be no cointegration evidence.
In other words, there is no common trend in the movement of the two variables .
xports and economic growt.
Therefore, any search for causality in the case of countries other than Indonesia and Singapore are unwarranted and can obtain a misleading inference.
Table 3 presents the results of the Granger causality test for ASEAN countries.
The results indicate that Indonesia and Philippines have two-way causal relationship or bi-directional relationship between exports-economic growth and economic growth-exports.
It means exports Grangercause economic growth, in turn, economic growth Granger-cause exports.
The results also reveal that an increase in exports is as- Probability 9E-06 sociated with an appreciation of the economic growth and vice versa.
While, only Singapore has unidirectional causality running from exports to economic growth (LXPT to LGDP) where F-value 7.
6937 is significant at the 5% level and thus supportled growth hypothesis.
However, the F-statistics from the Granger-causality test suggest that no causality between exports and economic growth in Malaysia and Thailand.
CONCLUSIONS
The main objective of this study is to test empirically the causality relationship between export and economic growth (GDP) in the case of ASEAN countries over the period 1966-2000.
The existence of this relationship has been analysed using a co integration and causality framework.
The results of the tests for co integration indicate that:
first, exports and economic growth are integrated in Indonesia and Singapore.
This conclusion implies that there exists a longrun relationship between exports and economic growth.
While in others countries Jurnal Ekonomi Pembangunan Vol.
8 No.
Desember 2003 Hal: 89 Ae 95 there exist a short run relationship between exports and economic growth.
Second, there is two-way causality relationship between exports and economic growth in Indonesia and the Philippines.
While.
In Singapore there is only unidirectional causality running from exports to economic growth.
However, there is no causality between exports and economic growth in Malaysia and Thailand countries directly.
The policy implications of this study are not optimistic for the hy- pothesis of export-led growth in the ASEAN As the results for Indonesia.
Singapore, and the Philippines there is evidence of a growth pattern in which internally generated mechanism and the growth of exports interact with economic growth.
The government policy of these countries will be different from Malaysia and Thailand which no causality relationship between exports and economic growth directly.
REFERENCES