Does Export Lead Economic Growth? Or Other Way? VEC-Granger Causality Evidence from Nine South-East Asian Countries

Abstract

Applying the Vector Error Correction (VEC) model and the VEC Granger causality/Wald Exogeniety tests, this paper investigated the causal relation between export, economic growth, and financial development of nine South and South East Asian countries during 1974-2015. The significance of the error correction term (ECT) established short and long run dynamics. The VEC Granger causality/Wald Exogeniety tests found bidirectional Granger causality between economic growth (GDP) and export (EXPRT) in Malaysia, Singapore, and Thailand. Unidirectional causality running from EXPRT to GDP was found in Bangladesh, Pakistan and Sri Lanka. Unidirectional causality running from GDP growth to export was found in India. Bidirectional Granger causality between financial development (BKCRDT) and export growth was found in Thailand. Pairwise Granger causality results, because of lack of cointegration, found that GDP Granger caused EXPRT in Indonesia.

The paper provides policy prescription that the governments should provide emphasis on promoting and
protecting the export industries that promotes the economic growth of the countries