On the export-led growth hypothesis for the little dragons: An empirical reinvestigation

Abstract

The export-led growth hypothesis is tested using quarterly time series data for Hong Kong, Korea, and Taiwan and by constructing a vector autoregression (VAR) model. The Granger no-causality procedure developed by Toda and Yamamoto [1995] was applied to test the causal link between real export growth and real industrial output growth. Three distinct features in this paper stand out against earlier studies on the Little Dragon countries of Asia. First, going beyond the traditional two-variable relationship, a VAR model is built in the production function context to avoid a possible specification bias. Second, Riezman et al. [1996] are followed to test the export-led growth hypothesis while controlling for the growth of imports to avoid producing a spurious causality result. Third, the sensitivity of causality test results under different lag structures is tested along with the choice of optimal lags. In particular, the methodology developed by Toda and Yamamoto is expected to improve the standard F-statistics in the causality test process. The principal result from this research cannot offer support for the export-led growth hypothesis.