Abstract
This research empirically investigates the causality between trade, technology, human capital and economic growth in the United Arab Emirates (UAE) over the period 1980–2016. To investigate the existence of a long-run relationship between the variables, this study performs the Johansen cointegration test, while the direction of the short-run causality is examined by applying the Granger causality test in a Vector Error Correction Model (VECM) framework. Moreover, a modified Wald test in an augmented Vector Autoregressive Model is applied in order to find the direction of the long-run causality. This research provides evidence to support a short-run bi-directional causality between primary imports and economic growth, while an indirect causality runs from manufactured imports and human capital to economic growth, through exports and primary imports. Empirical results do not provide evidence of either an Import-Led growth (ILG) or Export-Led Growth (ELG) hypothesis in the long-run, while no causality runs from primary imports, manufactured imports or exports to human capital.
Highlights
A number of previous studies indicate that imports are a major channel for technology transfer and knowledge diffusion, which are essential to improving productivity and economic growth [1,2,3,4]
The Vector Autoregressive Model (VAR) model, which is developed by Sims [36], is used to investigate the existence of a short-run causality between technology embodied in imports, exports, human capital and economic growth in the United Arab Emirates (UAE)
These results show that an increase in primary imports, encourages domestic-substituting firms to innovate in order to be more competitive, expanding their investments in new technology, improving productivity and economic growth
Summary
A number of previous studies indicate that imports are a major channel for technology transfer and knowledge diffusion, which are essential to improving productivity and economic growth [1,2,3,4]. This research will empirically investigate the causality between new technologies (embodied in manufactured imports), exports, human capital and economic growth in the UAE, which is the most diversified economy in the Gulf Cooperation Council (GCC) region. The value of UAE merchandise exports in 1980 is estimated at around US$21.97 billion, rising to US$266 billion in 2016, with an average growth per annum of 9%. The value of UAE merchandise imports in 1980 was estimated at US$10.22 billion, rising to US$353.8 billion in 2016, with an average growth per annum of 11.1%. This research attempts to investigate whether new technologies (embodied in manufactured imports) cause further export expansion, which in return could accelerate human capital accumulation and economic growth in the UAE in the short-run or long-run. This study will help in designing future policies for enhancing and sustaining economic growth in UAE
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