Bi-directional Relationships between Exports and Growth: A Panel Cointegration Analysis

Abstract

This paper explores the relationship between international trade and economic growth, employing cutting-edge panel cointegration testing and estimation techniques. Annual panel data on 81 coun-tries' macroeconomic variables over the period 1960-2003 are ex-ploited in empirical analysis. Various panel unit root tests demon-strate that the data variables are integrated processes with unit roots. Three distinct panel cointegration techniques are used to estimate the regression equation. A positive bi-directional interac-tive relationship between exports and output growth is found and the positive impact of output on exports is a bit stronger than the reverse. The positive association between investment share and exports and the negative correlation between labor and exports are confirmed. The exports of high income, high export, and high investment countries seem to have somewhat larger output en-hancement effects than those of low income, low export, and low investment nations. Several elucidations and policy implications are provided for the above findings.