Export Upgrading and Economic Growth: a Panel Cointegration and Causality Analysis

Abstract

The main objective of this study is to examine the long-run relationship between export upgrading and economic growth for 51 countries over the period of 1984–2015. For this purpose, a panel cointegration framework that allows to control for parameters heterogeneity, cross-sectional dependence, and nonstationarity has been deployed. Furthermore, three homogenous subpanels have been considered based on the income level of the sample countries (high-, middle-, and low-income subpanels). Empirical results from panel cointegration tests yield evidence of a long-run relationship between export upgrading, economic growth, FDI, human capital, and trade openness. Moreover, based on the common correlated effects mean group (CCEMG) technique, the results indicate that export upgrading has a positive and significant effect on economic growth for the global, high-income, and middle-income panels, while this effect is insignificant for the low-income country panel. The causality analysis indicates the existence of a feedback effect between export complexity and economic growth for the global panel as well as for the high- and middle-income country groups in the long-run. For low-income countries, however, there is no causal relationship between these two variables, and this finding holds both in the short run and in the long run.