A revisitation of the export-led growth hypothesis in Malaysia using the leveraged bootstrap simulation and rolling causality techniques

Abstract

According to the neoclassical growth theory, export expansion could stimulate economic growth because it promotes specialisation and raises factor productivity. Thus, many developing countries depend heavily on export-orientated businesses to accelerate economic growth. Nevertheless, the causality evidences on the export-led growth hypothesis remain elusive and controversial. Two primary empirical questions emerged in the international trade and development literatures are: (a) Does the export-led growth hypothesis still valid? (b) Why causality evidences are inconsistent among studies? In light of these, the present study attempts to contribute to the export-led growth literature by using the Malaysian data set. This study covers the monthly data set from January 1975 to August 2010. To achieve the objectives of this study, we employ the leveraged bootstrap simulation causality test and also the rolling regression-based causality tests. The leveraged bootstrap simulation causality results suggest that exports and output growth are bilateral causality in nature. However, the rolling causality results demonstrate that the causality inferences for export-led growth hypothesis are unstable over time. For this reason, policy initiative to promote exports may not always stimulate economic growth and development in Malaysia. Therefore, balancing policy is urged to ensure that the economic growth in Malaysia can be materialised.

Keywords:

• causality
• export-led growth
• Malaysia
• rolling regression

JEL Classification:

• C22

Acknowledgements

The author would like to thanks the two anonymous reviewers for their constructive comments and suggestions given on the earlier draft of this research. The author would also like to acknowledge Abdulnasser Hatemi-J for sharing his GAUSS programming codes used to perform the leveraged bootstrap causality test and also the multivariate ARCH test. All remaining errors and omissions in this research are entirely the author's responsibility.

Notes

The series of industrialisation strategy included import-substituting industrialisation policy in the 1960s, export-orientated industrialisation policy in the 1970s via the Investment Incentives Act 1968, and the Industrial Master Plans (IMP) of the 1980s and 1990s.

Chua et al. 7 also found that the increased level of dependence on foreign markets made the Malaysian economy more susceptible to foreign shock.