Abstract
How exports affect growth has attracted considerable attention of the researchers in recent years. The failure of the import substitution policy during 1950s and 1960s to engender growth, led the South Asian countries to adopt export promotion strategy in the 70s and 80s to foster their economic growth. Many factors have caused this shift. Firstly, higher export earnings are expected to enhance the ability of a developing country to import additional industrial raw materials and capital goods, which in turn, are likely to expand its productive capacity. Secondly, the competition in the exports market may allow for greater capacity utilisation, higher economies of scale, greater specialisation on the basis of comparative advantage and accelerated technical progress in production for greater contribution to increased employment. Thirdly, strong correlation observed between exports and economic growth prompts export promotion further as part of the development strategy [Khan, et al. (1995)].
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