Exports, Non-Exports and Externalities: A Granger Causality Approach

Abstract

Illustrated within the context of a dynamic form of the neoclassical two-sector growth model, we show that existing empirical studies may not detect potentially significant externality effects associated with expansion of the export sector because of declining marginal productivity differentials. A time series empirical methodology analyzing the interactions of the non-export sector and export sector is suggested which avoids this problem and isolates potential externality effects. Time series analy- sis gives results generally favorable to the existence of significant positive externality effects running from export growth to non-export output growth for a significant number of developing economies. [F 11]