Exports, imports, government consumption and economic growth in upper-middle income countries

Abstract

Esfahani ( 1991 ) shows that the statistically significant correlation between export promotion and economic growth in semi-industrialized countries (SICs) has been mainly attributable to the role of exports in reducing import ‘shortages’, which have impeded output growth in these countries. As a result, export-promotion policies as a superior development strategy in SICs play an important role in those that cannot secure sufficient foreign aid or investment. Esfahani ( 1991 ) also develops a simultaneous equations model to address the simultaneity bias between GDP and export growth rates. In this article we extend the model developed by Esfahani ( 1991 ) by incorporating the contribution of government consumption to output growth and test it using a sample of 27 upper-middle income economies.