Abstract
ABSTRACT This paper examines the validity of the export-led growth (ELG) hypothesis in the United Arab Emirates (UAE) over the period 1975–2012, using a neoclassical production function augmented with merchandise exports and imports of goods and services. The study applies the Johansen cointegration technique and dynamic ordinary least squares (DOLS) regression to confirm the existence of a long-run relationship between exports and economic growth, while the multivariate Granger causality test is applied to examine the direction of the short-run causality. In addition, the existence of long-run causality is investigated by applying a modified version of the Wald test in an augmented vector autoregressive model. The Johansen test and DOLS results confirm the existence of a long-run relationship between exports and economic growth. In addition, the study provides evidence to support the validity of the ELG hypothesis in the short-run, while no long-run causality is found to exist.
Highlights
The relationship between exports and economic growth is a central theme in the discourse among economists trying to explain differences in the rate of economic growth between countries
The results of this study provide evidence to support the validity of the export-led growth (ELG) hypothesis in the short-run, while indicating that there is no long-run causality between merchandise exports and economic growth in the United Arab Emirates (UAE)
They show that the null hypothesis of non-causality from exports to economic growth is rejected at 1% level, indicating that the ELG hypothesis is valid in the short-run
Summary
The relationship between exports and economic growth is a central theme in the discourse among economists trying to explain differences in the rate of economic growth between countries. Oil-producing economies like that of the UAE are subject to oil price shocks and for this reason, in addition to conventional unit root tests, the Saikkonen and Lutkepohl test with a structural break is applied Another issue that is overlooked by previous studies is that Johansen’s (1988) cointegration test can be biased towards rejecting the null hypothesis of no cointegration for small samples. In a multivariate ECM context, it is not possible to confirm the validity of the ELG hypothesis in the long-run For this reason, this study uses the Toda Yamamoto modified Granger causality test, which overcomes the limitations of previous studies. The results of this study provide evidence to support the validity of the ELG hypothesis in the short-run, while indicating that there is no long-run causality between merchandise exports and economic growth in the UAE.
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