The Relationship between the Growth of Exports and Growth of Gross Domestic Product of India

Abstract

Does Economic Growth Promote Exports of a country or do exports lead to a higher growth? This paper tries to answer this question in the context of India, using a three step procedure of first conducting a Vector Auto Regression (VAR) analysis followed by a Granger Causality Test and an Impulse Response Function. Taking yearly data from 1969-2012, we find that growth of exports depends positively on growth of GDP with a year lag. Robustness checks show consistent VAR Results. Further the Granger Causality Test determines that GDP Growth causes Export growth in India. Finally Impulse Response Functions generated show that there are much higher responses of export through a change in GDP. So unanimously we find that India backs the theory of Growth Led Exports.