Is export-led growth hypothesis still valid for sub-Saharan African countries? New evidence from panel data analysis

Nicholas M Odhiambo

doi:10.1108/ejmbe-06-2020-0156

Abstract

PurposeThis study examines the causal relationship between exports and economic growth in sub-Saharan African (SSA) countries during the period 1980 to 2017. The study also examines whether the causality between these two macroeconomic variables depends on the countries' stage of development as proxied by their per capita income.Design/methodology/approachThe study uses a panel cointegration test and panel Granger-causality model to examine the link between exports and growth. The study also incorporates external debt as an intermittent variable in a bivariate setting between exports and economic growth, thereby creating a dynamic multivariate panel Granger-causality model.FindingsAlthough the study found the existence of a long-run relationship between exports and economic growth, the study failed to find any export-led growth response in both low-income and middle-income countries. Instead, the study found evidence of a bidirectional causality and a neutrality response in middle-income and low-income countries, respectively. The study, therefore, concludes that the benefits of an export-led growth hypothesis may have been oversold, and that the strategy may not be desirable to some low-income developing countries.Practical implicationsThese findings have important policy implications as they indicate that the causality between exports and economic growth in SSA countries varies with the countries' stage of development. Consistent with the contemporary literature, the study cautions low-income SSA countries against over-relying on an export-led growth strategy to achieve a sustained growth path as no causality between exports and economic growth has been found to exist in those countries. Instead, such countries should consider pursuing new growth strategies by building the domestic demand side of their economies alongside their export promotion strategies in order to expand the real sector of their economies. For middle-income countries, the study recommends that both export promotion strategies and pro-growth policies should be intensified as economic growth and exports have been found to reinforce each other in those countries.Originality/valueUnlike the previous studies, the current study disaggregated the full sample of SSA countries into two subsets – one comprising of low-income countries and the other consisting of middle-income countries. In addition, the study uses a multivariate Granger-causality model in order to address the emission-of-variable bias. To our knowledge, this may be the first study of its kind in recent years to examine in detail the causal relationship between exports and economic growth in SSA countries using an ECM-based multivariate panel Granger-causality model.

Highlights

The relationship between exports and economic growth has attracted numerous studies in recent decades
Even where such studies have been conducted, the findings on the causal relationship between exports and economic growth remains mixed at best and controversial at worst. Some of these previous studies have fundamental methodological weaknesses. It is against this background that the current study aims to examine the causal relationship between exports and economic growth in sub-Saharan African countries using a panel Granger causal model
External debt has been used as an intermittent variable in a bivariate setting between exports and economic growth, leading to a multivariate panel Grangercausality model

Summary

Introduction

The relationship between exports and economic growth has attracted numerous studies in recent decades. The second group of studies supports a unidirectional causal flow from economic growth to exports These include studies, such as Oxley (1993) for the case of Portugal; Ahmad and Harnhirun (1996) for the case of ASEAN Countries; Henriques and Sadorsky (1996) for Canada; Baharumshah and Rashid (1999) for Malaysia; El-Sakka and AlMutairi (2000) for the United Arab Emirates; Hatemi-J and Irandoust (2000) for the case of Denmark; Panas and Vamvoukas (2002) for the case of Greece in the long run; Shan and Tian (2002) for Shanghai; Reppas and Christopoulos (2005) for the case of 22 less developed Asian and African countries; Cetintas and Barisik (2009) for 13 transition economies; Abbas (2012) for Pakistan; Igbal et al (2012) for Pakistan; Shihab et al (2014) for Jordan; Bonga et al (2015) for Zimbabwe; Gokmenoglu et al (2015) for Costa Rica; Popovici and Calin (2016) for Romania; and more recently, Kalaitzi and Cleeve (2018) for the case of the UAE in the long run. D: Studies in favour of neutrality hypothesis [i.e. No causality between exports and economic growth]

47 African Countries

Conclusion