The Relationship Between International Trade and Economic Growth in Mali: Co-integration and Causality Analysis

Abstract

The relationship between international trade and economic growth remains until today one the most controversial issues among economists. Despite several empirical studies, they found mixed results in the case of Mali. Therefore, this paper aims to investigate the causal relationship between international trade and economic growth in Mali over the time period of 1986-2015. In order to achieve it, Johansen Co-integration test , Vector Error Correction Model (VECM) and Granger causality test are used. The Johansen Co-integration test indicates the presence of long-run relationship among all the variables. The VECM reveals that the variables exports and labor significantly impact economic growth in the long run while in the short, only gross capital formation is found to have a positive and significant impact on economic growth. Lastly, the Granger causality test reveals that except the variable imports, there is unidirectional causal relationship running from variables exports, gross capital formation and labor to economic growth in Mali. The key findings of this paper are that exports and imports negatively impact economic growth but only the impact of exports is significant in the long-run. The variables gross capital formation and labor respectively have positive impact on economic growth in the short run and long-run. Therefore, this paper recommends to policymakers to increase infrastructure investment in order to reduce trade cost and diversify exports away from primary commodities to manufacture .

Keywords: International trade, Economic growth, Johansen cointegration test, Granger causality test, Mali