IMPORTS, EXPORTS AND ECONOMIC GROWTH : A MULTIPLE COINTEGRATION ANALYSIS

Abstract

The formulation of an effective development strategy is always of paramount importance to a country. For this reason, the impressive growth record of the outward-oriented East Asian economies during the past decade has rekindled research interest in the export-led growth hypothesis. While early empirical work on the role of exports on economic growth involved mainly ascertaining a positive correlation between the two, emphasis has since shifted to determining the direction of causality between the two. Some studies had also employed cointegration technique and error correction model (ECM) to analyse the above issue. In a heavily trade dependent economy with insufficient domestic resources, one would expect exports as well as imports to play an important role in economic growth. This is because export expansion is contingent on the availability of imports and Singapore could be taken as a representative of such economies. This thesis, therefore, seeks to examine the inter-relationships among imports, exports and economic growth in Singapore using recent time-series modelling techniques. Moving away from the traditional bivariate analysis, the imports variable is included as its omission may lead to misleading inferences. In particular, an attempt is made to establish long-run relationships, if any, among the three variables. This is achieved through the use of Johansen cointegration technique on the quarterly data, covering the period 1978.I to 1996.III. Upon which, a Granger causality analysis, based on an ECM framework, will be conducted to assess the direction of causality between the three variables.