Abstract
Export-led growth hypothesis (ELGH) claims that there is a positive relationship between exports and long-run economic growth. This research study tests the ELGH in the case of services exports analyzing annual time series data from 1984 to 2013 in Sri Lanka. The study employs Granger no-causality procedure developed by Toda and Yamamoto in a vector autoregressive model (VAR) to identify the causality relationship between services exports and GDP. The findings indicate that unidirectional causality is running from services exports to economic growth in Sri Lanka. Therefore, ELGH holds for services exports of Sri Lanka. The results are remained unchanged in the different lag structures and order of integration. Hence, policies to encourage services exports could be of an important driver of Sri Lanka’s long-run economic growth.
Highlights
Export-led growth hypothesis (ELGH) is one of most debatably discussed topics in exports and economic growth literature
This study employs Granger non-causality test developed by Toda and Yamamoto (1995) to investigate the causality between services exports and GDP in Sri Lanka for the period from 1984-2013
The analysis focuses on the robustness of findings with different lag structures and different orders of integration
Summary
Export-led growth hypothesis (ELGH) is one of most debatably discussed topics in exports and economic growth literature. ELGH claims that there is a positive relationship between exports and long-run economic growth. ELGH is not new to the econometric literature; it has roots at least as old as the classical economic thoughts. Several theoretical developments have been made for ELGH. The modern economists are of two views of ELGH supporting classical thought. 1) Export creates competition which leads raising economies of scale and allocation of technical progress in the production [1] [2] [3] [4] [5]. 2) Export is attributed as a foreign exchange earning source, facilitating for imports of capital goods and other The modern economists are of two views of ELGH supporting classical thought. 1) Export creates competition which leads raising economies of scale and allocation of technical progress in the production [1] [2] [3] [4] [5]. 2) Export is attributed as a foreign exchange earning source, facilitating for imports of capital goods and other
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