A Causality Analysis on the Empirical Nexus between Export and Economic Growth: Evidence from India

Abstract

The paper tries to assess empirically the relationship between export and economic growth in India using annual data over the period 1972-73 to 2010-11. Time-series econometric techniques (Granger causality and cointegration) are applied to test the hypothesis of economic growth strategy led by exports. The paper is based on the following hypotheses for testing the causality and co-integration between GDP and export in India as to whether there is bi-directional causality between GDP growth and export, or whether there is unidirectional causality between the two variables or whether there is no causality between GDP and export in India or whether there exists a long run relationship between GDP and Export India. The cointegration test confirmed that economic growth and exports are co integrated, indicating an existence of long run equilibrium relationship between the two as confirmed by the Johansen cointegration test results. The Granger causality test finally confirmed the presence of bi-directional causality which runs from economic growth to export and vice-versa. The error correction estimates gave evidence that in short run also, export and GDP are mutually causal.

Keywords: Exports, economic growth, India, causality, cointegration, error correction model.