Imports, exports and economic growth: Cointegration and causality tests for Singapore

Abstract

The argument for pursuing export promotion policies to stimulate economic growth is basically linked to the well-known export-led growth hypothesis. However, in an economy with insufficient resources for production, such export expansion heavily depends on import expansion as well. Using the case of Singapore, this paper attempts to examine the inter-relationship among imports, exports and economic growth. In particular, an attempt is made to establish a long-run relationship, if any, among the three variables. Econometric techniques, including Dickey-Fuller unit root test and Johansen-Juselius cointegration test, are applied to quarterly data. The model is further extended to identify the direction of causality within an error correction model. The results strongly support a long-run relationship among the three variables for Singapore.