Re-examining export-led growth hypothesis: a multivariate cointegration analysis for India

Abstract

This paper re-examines the export-led-growth (ELG) hypothesis using a vector autoregressive (VAR) model by considering the relationship between real GDP, real exports and terms of trade for India during the period 1961-93. In re-examining the ELG hypothesis, this study, perhaps for the first time, employs a multivariate framework using Johansen's model selection and maximum likelihood cointegration procedure. The results sugest that there is one long-run equilibrium relationship among the three variables, and the causal relationship flows from the growth in GDP and terms of trade to the growth in exports. The causality from exports to GDP appears to be a short run phenomenon, suggesting that the recent export promotion strategies adopted in India have the potential of bearing growth in the future.