Abstract
The principal question that this research addresses is the validity of the Export-Led Growth hypothesis (ELG) in the United Arab Emirates (UAE) over the period 1981–2012, focusing on the causality between primary exports, manufactured exports and economic growth. Unit root tests are applied to examine the time-series properties of the variables, while the Johansen cointegration test is performed to confirm or not the existence of a long-run relationship between the variables. Moreover, the multivariate Granger causality test and a modified version of Wald test are applied to examine the direction of the short-run and long-run causality respectively. The cointegration analysis reveals that manufactured exports contribute more to economic growth than primary exports in the long-run. In addition, this research provides evidence to support a bi-directional causality between manufactured exports and economic growth in the short-run, while the Growth-Led Exports (GLE) hypothesis is valid in the long-run for UAE.
Highlights
The contribution of exports to economic growth has received growing attention as economists try to account for the different levels of economic growth between countries
In order to examine whether a causal relationship exists between primary exports, manufactured exports and economic growth in the United Arab Emirates (UAE), the following tests are applied: (a) Unit root tests in order to examine the stationarity of the variables included in the model, (b) Cointegration test to confirm or not the Export-led Growth hypothesis and (c) the multivariate Granger causality test and the modified Wald test (MWALD) to investigate the direction of the short-run and long-run causality respectively
This result shows that economic growth can cause an increase in manufactured exports, by increasing the national production, the capacity to import essential materials for domestic production and improving the existing technology
Summary
The contribution of exports to economic growth has received growing attention as economists try to account for the different levels of economic growth between countries. Two studies, that by Al-Yousif (1997) and that by El-Sakka and Al-Mutairi (2000) have investigated the causality between total exports and economic growth in the UAE and their results are contradictive. The study by El-Sakka and AlMutairi (2000) supports the Growth-Led Exports (GLE), using more advanced econometric techniques; the use of bivariate framework may lead to misleading and biased results For this reason, the present paper uses advanced econometric techniques in a multivariate framework, overcoming the limitations of previous studies and unveiling the different causal effects that subcategories of exports can have. Empirical findings provide evidence to support a short-run bi-directional causality between manufactured exports and economic growth, while the GrowthLed Exports (GLE) hypothesis is valid in the long-run for UAE.
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