Export-led growth hypothesis for Australia: an empirical re-investigation

Abstract

The export-led growth hypothesis is tested using quarterly time series data for Australia by constructing a vector autoregression (VAR) model. The Granger no-causality procedure developed by Toda and Yamamoto (Journal of Econometrics, 66, 225-50, 1995) was applied to test the causality link between real export growth and real manufacturing output growth. Three distinct features in this paper stand out compared to earlier studies on the case of Australia: first, we have gone beyond the traditional two-variable relationship by building a five-variable VAR model in the production function context to avoid the possible specification bias; second, we follow Riezman, Whiteman and Summers (Empirical Economics, 21, 77-110, 1996) to test the hypothesis while controlling for the growth of imports to avoid producing a spurious causality result; and finally, the methodology by Toda and Yamamoto is expected to improve the standard F -statistics in the causality test process. Two principle results emerge from our research. First, no evidence was found for the export-led growth hypothesis in Australia; second, when applying a longer lag structure, we found evidence of a one-way Granger causality running from manufacturing growth to exports growth.