Export and Economic Growth: Further Time Series Evidence from Less-Developed Countries

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RUBINA VOHRA [*]

The purpose of this paper is to examine the role of export-growth linkage in India, Pakistan, the Philippines, Malaysia, and Thailand on the basis of time series data from 1973 to 1993. The empirical results indicate that exports have a positive and significant impact on economic growth when a country has achieved some level of economic development. The result also signifies the importance of liberal market policies by pursuing export expansion strategies and by attracting foreign investments. (JEL F4)

Introduction

The debate on the relationship between export expansion and economic growth has exhibited considerable interest in the field of development economics. Several empirical studies have been conducted to assess the role of exports in the economic growth of developing countries from various aspects (see Michaely [1977], Tyler [1981], Feder [1982], Balassa [19851, Chow [1987], Krueger [1990], Ram [1985, 1987], and Sengupta and Espana [1994]). Most of the studies have concluded beneficial effects of export performance on economic growth such as:

1) increasing specialization and the spillover effects of the export sector's growth;

2) greater capacity utilization;

3) the externality effect of exports in the diffusion of modern technology across other sectors and industries; and

4) the increasing effects of economies of scale, industrialization, and import of capital goods.

Most of the existing empirical studies are based on cross-section data across countries except for Ram [1987], which, as Ram pointed out, may result in loss of important parametric differences between countries. The purpose of this paper is to investigate the relationship between export expansion and economic performance and to provide additional statistical evidence for five Asian countries, namely, India, Malaysia, Pakistan, the Philippines, and Thailand, on the basis of time series data from 1973 to 1993. [1] These countries can be divided into two groups: India and Pakistan are low-income economies based on the gross national product per capita of $695 (U.S. dollars) or less in 1993, whereas Malaysia, the Philippines, and Thailand are middle-income economies with a gross national product per capita of more than $695 but less than $8,626 in 1993 [World Bank, 1995]. Over the past two decades, the middle-income countries have shown impressive economic growth, placing them in a group of fast-growing economie s, especially since the early 1980s. These countries have made impressive advances by relying on export-led growth strategy. They favor outward-oriented policies as the economies of the so-called newly industrialized countries of the Asian Pacific Rim, such as Hong Kong, Singapore, South Korea, Taiwan, and Japan, whereas India and Pakistan have favored inward-oriented policies during a great part of their economic histories. Recently, however, these two countries have shown signs of pursuing liberal market policies. For example, in 1993, the ratios of exports to gross domestic product in these five countries were 80 percent (Malaysia), 40.81 percent (Thailand), 33.70 percent (Philippines), 16.95 percent (Pakistan), and 8.76 percent (India). Although the record of these countries (specifically India and Pakistan) is not as successful as the growth record of newly industrialized countries, still the success of outward-oriented policies in East Asia has revived the debate on increased openness and export promoti on strategies in less-developed countries. This paper is interested in reporting the experiences of other successful (less successful) countries in Asia. The findings indicate that exports have a positive impact on economic growth when a country has achieved some level of economic development. The results also signify the importance of liberal market policies by pursuing export expansion strategies and by attracting foreign investments.

This paper is organized as follows. …