Abstract
Staff Studies is the bi-annual (March and September) peer-reviewed journal of the Central Bank of Sri Lanka. The Journal aims at stimulating innovative research for the analysis of current macroeconomic issues and policy challenges faced by central banks while providing a forum to present recent theoretical and empirical research.
Highlights
The relationship between export growth and economic growth has long been one of the major areas concerned in the theoretical and empirical literature in international trade and development economics
The Augmented Dickey-Fuller (ADF) test was used, which is based on the Schwarz Information Criterion (SIC), while the PP test bandwidth is based on Newey-West
The results indicate that each variable is integrated of order one, I(1)
Summary
The relationship between export growth and economic growth has long been one of the major areas concerned in the theoretical and empirical literature in international trade and development economics. Cross-country as well as time-series analysis, examined the relationship between export growth and economic growth, looking at simple correlation relationships (eg: Balassa 1978, 1985, Kravis 1970). The problems of their methodology were that it does not provide the indication of directional relationships: whether export growth causes economic growth or economic growth causes export growth. The neoclassical views, suggest with empirical evidences that export growth causes economic growth (i.e. the export-led growth hypothesis), there are still some, who do not believe the export-led growth hypothesis This present study on export and economic growth employs cointegration technique and causality testing to identify the two-way directional relationships in Sri Lankan context. VARs and IRFs are employed to examine the impact of economic shocks
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