This paper is examines the causal relationships between gross domestic product (GDP) and exports in Pakistan by using time series data for the period between 1980 and 2000. Time series evidence shows that increase in exports has a significant effect on the economic growth of Pakistan in the previous two decades. This paper uses cointegration to check the causal relationship between export growth and economic growth in Pakistan. Granger Causality test shows that there is uni-directional causality between exports and economics growth in which running from exports to economic growth, it shows that there is long term relationship between exports and the economic growth. ADF and DF test are use to check the stationarity of the time series data.
The relationship between export and GDP growth has importance in both theoretical and empirical literature. The early analysis on this relationship examined the correlation coefficient between exports and GDP growth. According to these studies the export expansion and economic growth are positively correlated. Recent studies have emphasis on causality between export expansion and economic growth. This paper attempts to provide analysis of export-led growth hypothesis for the case of Pakistan. Export-led growth is an economic strategy used by some developing countries. Export-led growth is important because it can create profit and it allowing the country to balance their finance. The most common ways are to attain export-led growth by the exports of the manufactured goods and the exports of raw materials. Today, due to the global economic crisis, many countries are rightly worried about the benefits of a growth process built on export-led growth. This paper proceeds as follows.
The relationship between export and economic growth has been examined during the last two decades. The competition in exports may create the exploitation of economies of scale, more capacity may be utilize, allocation of efficient resources, and improvement in the uses of technical progress in production. The positive relation between exports and economic growth was explained as important evidence for the expansion and improvement in exports, so it is a development strategy. Examine the relationship and causation direction between exports and economic growth has importance for the policies implications of development strategies. If there is unidirectional causality and it is from exports to economic growth, then it will create the export-led growth strategy. If there is unidirectional causality and it is from economic growth to exports, then it will describe that a high level of economic activity is required for developing countries to expand their exports. If there is bi-directional causality between export and economic growth, then it means that exports and economic growth have a reciprocal relationship. If there is no causality between exports and economic growth, it means that there is no need of export expansion strategies because there is the need of transformation of structural of developing countries. Because of its direct relevance to the choice of alternative development strategies investigated, using the Granger procedure, the direction of causation between exports and economic growth for many developing countries. Their findings have been mixed, ranging from one-way causality from exports growth to output growth to no causality. These studies suffer from two major shortcomings. The standard Granger or Sims tests are valid if the original time series are not co-integrated. If the time series are co-integrated, then any causal inferences are invalid. It is, therefore, essential to check for the co-integrating properties of the original time series before subjecting them to a test for causality.
2. Objective of this paper:
The objective of this paper is to identify the impact of increase in exports on the...