Abstract
This paper investigates the causality relationship between economic growth, exports and imports in Algeria using Cointegration, Error Correction Model, and VEC Granger causality/Wald Exogeniety tests. The paper finds that economic growth in Algeria is linked to export industries and import is linked to economic growth. In other words, the growth in export sectors Granger causes economic growth which, in turn, promotes the growth of imports in Algeria. The paper suggests policy prescription that the government of Algeria should put emphasis on promoting growth and development of export industries by ensuring increased productivity in such sector.
Highlights
In theoretical growth model, exports are considered as an engine of growth
The theoretical exports-led-growth (ELG) model has been hotly debated because empirical evidences of trade theory do not provide conclusive causal relation between exports and economic growth
Since empirical evidences are mixed and there is no consensus on the causal relation, this paper is motivated to investigate the relation between exports and economic growth in Algeria, one of ten MENA countries
Summary
Exports are considered as an engine of growth. First, exports being a component of GDP, the increase of exports directly increase GDP. The theoretical exports-led-growth (ELG) model has been hotly debated because empirical evidences of trade theory do not provide conclusive causal relation between exports and economic growth. Cross-country studies, in general, lend supports for ELG i.e. positive association between exports and economic growth (Balassa, 1988 and Moschos, 1989). Islam (1998) causality test found that export expansion led economic growth in two-third of fifteen Asian countries. Studies such as Grabowski et al (1990), Sharma et al (1991) found support in favor of exports led to economic growth (ELG). Since empirical evidences are mixed and there is no consensus on the causal relation, this paper is motivated to investigate the relation between exports and economic growth in Algeria, one of ten MENA countries.
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