Economic Growth, Export, and External Debt Causality: The Case of Asian Countries

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1 The Paksan Developmen Revew 39 : Par II (Wner 2000) pp Economc Growh, Expor, and Exernal Deb Causaly: The Case of Asan Counres QAZI MASOOD AHMED, MOHAMMAD SABIHUDDIN BUTT, and SHAISTA ALAM I. INTRODUCTION The ssue of how developng counres can accelerae her economc growh s of crucal mporance. The wo prmary alernave roues o developmen are nward-orened growh sraeges, whch emphasses mpor-subsuon ndusralsaon (ISI); and ouward-orened polces, whch emphasses he economc benefs of parcpaon n he world economy, ha s, expor-led growh (ELG). The lae 960s and 970s wnessed a dsllusonmen wh ISI n many developng counres, leadng o a reducon n proecons measures. The 980s wnessed furher nensfcaon of lberalsaon measures as many counres rereaed from socalsm, regulaon and plannng. The ds-advanages of ISI, he poenal srengh of ELG polces and he condons necessary for successful ranson from an nwardorened regmes o an ouward orened have been exensvely researched and beyond he scope of he presen sudy. Moreover many of he rapdly growng newly ndusralsng counres (NICs) lend suppor o he dea ha expor promoon can be an effecve developmen sraegy. Naurally such a lne of causaon s conssen wh macroeconomc heory, where expors are reaed as njecons no he economy [Kaldor (967); Feder (982); Romer (989); Krueger (990) and Marn (992)] 2. Sudes on he expor growh-economc growh nexus have been conduced along a number of dvergen lves. The nal es were done on a bvarae level o Qaz Masood Ahmed and Mohammad Sabhuddn Bu are boh Senor Research Economs, and Shasa Alam s Projec Economs, Appled Economcs Research Cenre, Unversy of Karach. See Jung and Marshall (985); and Greenaway and Sapsford (99) for a recen survey. 2 However, accordng o he basc enes of nernaonal rade and comparave advanage heory, a reversed causal sequence can also be envsaged, ha s, ha economc growh leads o expor growh. In hs scenaro, and ncrease n economc growh generally leads o a correspondng expanson of rade, unless he paern of growh-nduced supply and correspondng demand creaes an an-rade bas [For a good revew, See Bhagwa (988) and Pack (99)].

2 592 Ahmed, Bu, and Alam sudy he correlaon beween expors and economc growh n levels and hen n erms of rae of growh [Jung and Marshall (985)]. Correlaon beween expors and economc growh va oher economc growh-deermnng fundamenals such as labour and capal n a producon-ype funcon wh nvesmen (capal formaon), manufacurng, and oal expors was also nvesgaed [Balassa (988); Tyler (98) and Feder (982)]. Sudes were also conduced o consder he dfferenal mpacs of expors on economc growh dependng on he level of economc/ndusral developmen of he counry-crcal-mnmum effor hypohess [Kohl and Sngh (989) and Moschos (989)]. Recenly, here has been emphass on emprcal nvesgaon of he relaonshp beween expor revenue and economc growh usng he bvarae causaly ess of Granger (969) and Sms (972). Ths has resuled a consderable number of sudes boh for developed and developng counres [Jung and Marshall (985); Kwan and Cosoms (990); Bahman-Oskooee e al. (99); Du and Ghosh (996); Darra (987); Afxenou and Serles (992); Henrques and Sadorsky (996); Marn (992) and Khan e al. (995)]. However, mos recen sudes ha have use me-seres daa o nvesgae he bvarae causaly beween a counry s expor growh and s economc growh have provded mx-evdence o suppor he expor-led growh hypohess 3. Such papers nclude Bahman-Oskooee e al. (99); Chow (987); Jung and Marshall (985); Du and Ghosh (996); Darra (987); and Dodaro (993)]. The evdence n hese sudes demonsrae ha, hough expor growh and GDP growh have weak bdreconal causaly, bu, expor-promoon deserves a consderaon n developng counres. I was also found ha expors and economc growh are conegraed for a majory of sample counres. To dae here are only very few sudes ha consder he naure and drecon of causaon beween expor growh and economc growh n Asan counres conex, [e.g., Chow (987); Kwan and Cosoms (990); Jung and Marshall (985); and Khan e al. 995)]. Emprcal evdence based on hese causaly sudes are, however, mxed and n some cases conradcory. The absence of a conssen causal paern, parcularly n he case of Asan counres, may be arbued o he msspecfcaon of he causal model used n hese sudes due o he omsson of an mporan hrd varable, such as foregn deb. Consequenly, he parameer esmaes are lkely o be based and nconssen, leadng o msleadng causal lnks beween expors and growh. If mos of he foregn borrowngs beng ulsed o fnance economc developmen acves va expors orened secors of an economy, as my be he case of many Asan economes beng under consderaon, han expor growh spurously appears o cause economc growh, even hough hey may nfec be causally unrelaed. 3 There s anoher group of sudes ha have used cross-seconal daa and have provded suppor he ELG hypohess [See n parcular, Balassa (988); Feder (982); Kavouss (98) and Tyler (98)]. 592

3 Economc Growh, Expor, and Exernal Deb Causaly 593 Therefore, he omsson of foregn deb servcng varable may serously bas he emprcal causaly resuls beween expors and growh n he case of Asan economcs, because, for he sample of Asan counres beng under consderaon, foregn deb servcng s a major dsbursemen em on her foregn expor earnngs budge (Table ). Whereas, he deb servcng burden of Souh-Asan counres has been among he hghes n he ndebed developng counres. In lnes wh hs, effecve exernal deb managemen was a sgnfcan par of her srucural adjusmen programme beng persuaded by her donor agences. Furhermore, sudes usng mulple regressons and sascal echnques oher han bvarae causaly ess ndcae here are more sgnfcan varables, such as exernal deb, whch affec economc growh n addon o expor revenue [Levne and Renal (992); Remamur (992); Levy (988); and Islam (992)]. Fnally, mos of he Asan-Souh and Souh-Eas-counres have adoped IMF srucural economc adjusmen programmes o reduce macroeconomc nsably, remove economc dsorons, manage exernal deb burden, promoe he growh of expors, and resore susanable economc growh and nvesmen [IMF Annual Repors (99)]. The mplc assumpon s ha, addonal foregn loans can resore nvesmen and economc growh. Table Toal Exernal Deb Servcng as a Percenage of Expor Revenue n Asan Counres: (%) Counres Souh Asa Bangladesh N.A. 3.3 (0.60) (.7).39 (.38) Inda 7.9 (0.6) 0.86 (0.86) 3.06 (2.8) 2.8 (2.59) Paksan 7.5 (.6) 9.83 (2.28) 2.85 (2.97) 35.0 (5.36) Sr Lanka 2.76 (0.96).9 (.26) 9.89 (2.89) 6.27 (2.33) Souh Eas Asa Indonesa.39 (0.7) 9.76 (3.76) (6.63) 29.5 (7.90) Korea 6.63 (0.).86 (2.38) 9.73 (2.3) 5.5 (2.27) Malaysa.9 (0.5).68 (2.) 0.22 (7.22) 5.98 (5.7) Thaland.3 (0.6) 2.6 (2.38) 2.05 (3.87) 3.05 (5.2) Fgures n parenhess are oal deb servcng as a percenage of GDP.

4 59 Ahmed, Bu, and Alam I s a sylsed fac ha, nvesmen nfluence on he expor-growh relaonshp. Theorecally, an ncrease n expor allows an ncrease demand for mpored capal goods, whch rases he growh rae of capal formaon and hus smulaes growh. Snce, mos of hese nvesmen acves ook place n he expor-orened ndusres, hus resuled n mporan scale effecs and exernales for GDP growh, n he regon under consderaon. Ths, gven relavely rgd and arfcally hgh exchange raes and domesc fscal defcs, hrew he rade balance no a defc poson, necessang foregn borrowngs. Snce, expor revenues s he major source of foregn deb reremen, n many Asan counres, herefore, he causal relaonshp beween economc growh and expors growh needs o be emprcally reconsdered akng no consderaon he role of foregn deb servcng n such ndebed counres. Levy (988) and Murhy e al. (99) fnd ha foregn ad had a posve conrbuon o economc growh, and Hussan (99) fnds ha, some counres have acheved sgnfcan economc growh snce he nroducon of he adjusmen programmes. The precedng dscusson ndcaes f a greaer proporon of he expor revenue s beng used o servce exernal deb han a posve relaonshp beween expor revenue growh and deb servcng may be concevable because, counres wh promsng expor poenal end o succeed n obanng more foregn loans and, hence, o carry larger exernal deb and have a larger foregn deb servcng burden [Feder (982)]. Thus he expeced posve relaonshp beween expors growh and economc growh may no be sgnfcanly obaned, because, he resources from expors are dreced o servcng exernal deb nsead of nvesmen. The esablshmen of he causal paern beween expors and growh has mporan mplcaons for developmen sraeges for developng counres. If expor causes economc growh (X Y), hen he achevemen of a ceran degree of developmen may be a prerequse for he counry o expand s expors. A bdreconal causaly (or feed back) beween expors and growh (X Y) would mply ha, one renforces he oher. The prmary objecve of he presen sudy s o furher nvesgae he causaly beween expors and economc growh by nroducng exernal deb servcng as a hrd varable, whch may have a sgnfcan effec on he causaly beween expors and growh n developng counres of Souh and Souh Eas Asa. Undoubly, he ssue s a serous one and worhy of nvesgaon. To acheve hs objecve, a rvarae causaly framework s beng adoped. Un roo and conegraon ess are frs used o es wheher long-run equlbra exs among he varable combnaons consdered. Ths s o esablsh jusfcaon for a search for causal lnkages beween relaed varables hrough employng error-correcon model n a mulvarae framework. The model s esed on he me-seres daa of egh Asan counres vz; four Souh Asan and four Souh-Eas Asan over he perod, The res of he paper s organsed as 59

5 Economc Growh, Expor, and Exernal Deb Causaly 595 follows. The nex secon oulnes he mehodology and daa. Secon hree presens he esmaon resuls. The fnal secon presens conclusons. II. METHODOLOGY AND DATA In hs sudy, we examne he causaly beween expor revenue and economc growh by nroducng exernal deb servcng as a hrd economc varable whch may have a sgnfcan effec on he causaly beween expors and growh n developng counres. A rvarae causaly framework was adoped o mplemen he emprcal analyss. Cause and effec relaonshp are ofen dffcul o deermne gven he non expermenal naure of mos economc daa, and ha evdence of long-run equlbrum mus be found n he daa for vald Granger-ype causal nferences o be made. Only recenly has aenon been drawn o he need for pror examnaon of he me seres properes, noably un roos and co-negraon, ha bear on he sgnfcance and drecon of causaly fndngs. If he me seres are characersed by nonsaonary s approprae o es frs for he exsence of a long-run relaonshp beween he varables. Sascally, a long run equlbrum s sad o exs when a lnear combnaon of wo or more non-saonary me seres (.e., negraed of order or I() s negraed of order 0 (or I(0)). I s mporan ha he esng procedure capure he long run dynamcs n he me seres properes of he daa snce where co-movemen s presen, shor-run dvergences from he equlbrum wll be couneraced by long run forces. Thus reducng he rsk of spurous causaon resuls. For vald nferences es should herefore be underaken on he I(0) varables. Granger (988) shows ha n he presence of conegraon here mus be a bes one drecon 5 of Granger-Causaly. Followng Engle and Granger, we use a hree-sep procedure o es for he drecon of causaly. The frs sep ess for he order of negraon of he varables was done wh he ad of PP sascs [Phlps and Perron (988)]. Ths sascs es for he presence of a un roo under he alernave hypohess ha he me seres s saonary around a fxed rend. If a un roo s presen and saonary s acheved by frs-dfferencng he daa, he second sep ess conegraon es. If conegraon s no deeced, he hrd sep es for causaly by usng sandard Granger es. Assumng ha he levels of all varables n real erms are I() and conegraed. A frs es he bvarae causaly relaonshp beween expor growh and economc growh, as specfed below: α0 α Y b X V () Y Techncally, he lnear combnaon s negraed of lower order han he componen seres. 5 Noe ha hs causaly may run from he error correcon varable o he ncremens only.

6 Ahmed, Bu, and Alam Y X X η λ β γ 0 (2) where Y s he growh rae of real GDP measured as ln(gdp /GDP ), and X s he growh rae of real expors of goods and servces measured as ln(expor /Expor ). The hypohess ha expor revenue causes economc growh, f suppored by he daa, should mply ha he null hypohess of 0 b and λ 0. For he bvarae analyss he F-value s calculaed as: ) 2 ( ) ( ) ( ) 2 (, m n R R R F UR R UR m n (3) where R 2 UR and R 2 R are he unresrced R 2 and resrced R 2 for unresrced and resrced causaly regressons respecvely, n s he oal number of observaons and m s he number of lags per varable. The second es examnes he jonly nfluence of wo varables on he hrd varable. The jon rvarae causaly model s specfed as: u Z c X b Y Y α α 0 () e Z h Y X X λ β γ 0 (5) X f Y d Z q Z ε φ 0 (6) The dfference beween our approach and he exen leraure ced n he nroducon s he ncluson of a hrd varable, Z, defned as he growh rae of foregn deb servce, also measured as ln (deb servce /deb servce ). The focus of hs paper s on he role of foregn deb servcng n he expor and economc growh relaonshp and no he denfcaon of he numerous deermnans of growh [Levne and Renel (992)]. If he conegraon s deeced, n he hrd sep es for causaly, we applyng a sandard Granger es modfed wh an approprae error-correcon erm 6. The rvarae ess are specfed as generalsed exensons of he sandard case [Granger (969)] as follows: 6 Toda and Phllps (993) show ha, n esng causaly n conegraed sysems, he error- correcon form s preferred o level auoregressons.

7 Economc Growh, Expor, and Exernal Deb Causaly α Y b X c Z K R u (7) Y α β X λ Y h Z K2 R X γ0 2 e (8) Z φ 0 q Z d Y f X K3 R3 ε (9) where, all varables are saonary me seres, s he frs dfference operaor and he R, R2 and R3 are he lagged values of he error correcon erms derved from he long run conegraon equaon. Specfcally, Granger s causaly es examnes he causal relaonshp beween a se of varables by esng for her predcably based on pas and presen values. In Granger s sense, a se of varables Z s sad o be caused by X f he nformaon n pas or presen X helps o mprove he forecass of Z. If X causes Z and Z causes X, hen Y ( Z, X ) s a feedback sysem. The followng descrbes he es and herefore a sascal procedure. All evens have a heorecal populaon counerpar. Bu n our rvarae specfcaon, fve oucomes only are of neres on he grounds of economc heory. They are: () X and Z Granger-cause Y f b c 0, s no rue. Gven daa, we conclude hs f b c 0 s rejeced; () smlarly, f λ h 0 s rejeced, Y and Z Granger-cause X; () and so, f d f 0 s rejeced X and Y Granger-cause Z; (v) a feedback sysem exss f () () hold smulaneously; and fnally, (v) one canno rejec ha X, Y and Z are causally ndependen f all coeffcens of X and Z n Equaon (7), Y and Z n Equaon (8) and X and Y n Equaon (9) are no sascally dfferen from zero. The hypohess beng esed wh Equaons, 5, 6 and Equaons 7, 8 and 9, are: () Wheher X and Z jonly cause Y afer conrollng for Y s own lags. (2) Wheher Y and Z jonly cause X afer conrollng for X s own legs. (3) Wheher X and Y jonly cause Z afer conrollng for Z s own lags. Though quesons abou opmal lags are rased n he leraure, Jones (989) demonsraes ha ad-hoc mehods for deermnng he lags o use n Granger s causaly es performed beer han some of he sascal mehods used o search for opmal lags. Earler, Thornon and Baen (985) also found he fnal predcon mehods o be a beer echnque for deermnng he opmal lag. Thus, he ssue of he bes sascal mehod o use n deermnng he opmal lags s unresolved. We, herefore, esmaed Equaons o 6 and 7 o 9 assumng four lags for each varable. The F-sasc for he rvarae causaly es s calculaed as:

8 598 Ahmed, Bu, and Alam Daa F (, 2 2 R UR R R n 3m ) (0) 2 ( R UR) ( n 3m ) Annual daa on real Gross Domesc Produc (GDP) and real expors of goods and servces of four Souh Asan (Bangladesh, Inda, Paksan and Sr Lanka) and four Souh Eas Asan Counres (Indonesa, Korea, Malaysa and Thaland) for he perod of 970 o 997 were aken from World Developmen Indcaors and daa on exernal deb servcng was obaned from Global Developmen Fnance. All he daa were n 995 consan US dollars. III. ESTIMATION RESULTS Tesng causaly beween expors, growh and exernal deb: Granger and error-correcon ess. The es procedure gven n he prevous secon requres ha he me seres used for causaly be saonary. Therefore, pror o any causaly analyss, he negraon order of he me-seres under consderaon should be esed. The resuls of he un roo ess for he varables n her frs dfference are presened n Table 2. On he bass of he Phllps-Perron (PP) sascs, he null hypohess of a un roo canno be rejeced wheher or no rend s ncluded n he regressons, a all levels of sgnfcance, for each varable. Ths suggess ha all of our daa seres for each counry are frs dfference saonary (.e., I()). Ths mples ha combnaon of one or more of hese seres may exhb a long-run relaonshp. We, herefore, proceed wh conegraon ess. I was argued earler ha; conegraon ams a dealng explcly wh he relaonshp beween non-saonary me seres. In parcular, allows ndvdual me seres o be negraed of order one or I() n he ermnology of Engle and Granger (987), bu requres ha, lnear combnaons of hese seres I(0). Therefore, he basc concep of conegraon s o search for lnear combnaons of ndvdually non-saonary me-seres ha are hemselves saonary. As saed earler ha, presen endeavor s man concern s o re-examne he causaly beween expors and economc growh by adopng rvarae analyss n whch he jon nfluence of expors and exernal foregn deb may cause economc growh n developng counres, such as Asan. To acheve hs objecve, causaly ess are used o nvesgae causal relaonshp beween expors, economc growh and foregn deb servcng and as well as o denfy he drecon of such causaly. For hs purpose, sandard Granger es s employed when he me seres under consderaon have un roos, bu no conegraed (Equaons,, 5, and 6). If 598

9 Economc Growh, Expor, and Exernal Deb Causaly 599 Table 2 Phllps Perron Un Roo Tes () Counres Varable (Frs Dfferences) Consan, No Trend Consan, Trend No. of Lags Souh Asan Bangladesh X 9.09* 9.78* Y.53*.5* Z.73*.8* Inda X 5.5* 5.5* Y 5.30* 6.30* Z.*.25** Paksan X 5.8* 5.9* Y.03* 3.7** Z 8.5* 8.* Sr Lanka X 5.5* 5.7* Y.0*.35** Z 3.83*.00** Souh Eas Asa Indonesa X 3.78* 3.68** Y.8*.2* Z 2.* 3.5*** Korea X.05*.7** Y.2*.0** Z.9*.59* Malaysa X 5.02* 5.6* Y 3.8* 3.7** Z 5.38* 6.0* Thaland X.57*.6* Y Z 7.3* 7.2* * percen. **5 percen. ***0 percen. () All varables are non-saonary a level. conegraed s deeced, he hrd sep s ess for Granger causaly s o apply an errorcorrecon model (ECM) as proposed by Engle and Granger (987) o our me seres daa (Equaons 7, 8 and 9). Hence, he nex emprcal sage, naurally nvolves esng he exsence of a long-run equlbrum relaonshp among he relevan me-seres, for each counry. Conegraon ess were appled o dscover he possble long-erm relaonshps beween he varables. The resuls of he Engle-Granger conegraon ess conduced on he resduals of he conegraon regressons for varous combnaons of he logged varables are presened n Table 3. The reverse conegraon

10 600 Ahmed, Bu, and Alam Counres Table 3 Tes for Conegraon Dependen Varable PP Tes Sascs Inference Souh Asa Bangladesh Expor Growh No Conegraed Economc Growh Conegraed Deb Servcng Growh 3.5 Conegraed Inda Expor Growh No Conegraed Economc Growh 2.33 No Conegraed Deb Servcng Growh 2.36 No Conegraed Paksan Expor Growh No Conegraed Economc Growh No Conegraed Deb Servcng Growh No Conegraed Sr Lanka Expor Growh.832 No Conegraed Economc Growh 2.7 No Conegraed Deb Servcng Growh.97 No Conegraed Souh Eas Asa Indonesa Expor Growh.662 No Conegraed Economc Growh 3.82 Conegraed Deb Servcng Growh.72 Conegraed Korea Expor Growh No Conegraed Economc Growh No Conegraed Deb Servcng Growh No Conegraed Malaysa Expor Growh.85 No Conegraed Economc Growh No Conegraed Deb Servcng Growh No Conegraed Thaland Expor Growh.509 No Conegraed Economc Growh.935 No Conegraed Deb Servcng Growh 2.99 No Conegraed 600

11 Economc Growh, Expor, and Exernal Deb Causaly 60 was also performed. I s clearly evden from he resuls ha, all derved PP sascs are nsgnfcan a he 95 percen confdence level, mplyng ha, here s no evdence of long-run equlbrum relaonshp exs among he relevan me seres, wh noable excepons for Bangladesh and Indonesa. These resuls, n general, provde weak suppor for a conegraon relaonshp beween expors, economc growh and foregn deb servcng among several Asan Counres, ncludng Paksan. However, s plausble ha, a long-run equlbrum relaonshp exss among he relevan me-seres n he case of Bangladesh and Indonesa. These, resuls, however, do no exclude he possbly of a causal relaonshp among he me seres under consderaon. Nex we perform he causaly es for examnng he naure and drecon of he hypohessed causal lnks n he rvarae analyss n whch he jon nfluence of wo varables may cause he hrd varable. Snce, we conjecure ha foregn deb servcng, as a hrd economc varable, may have a sgnfcan effec on he causaly beween expors and economc growh n developng counres. As dscussed earler, he choce of a parcular causaly es depends upon he resuls of conegraon. The sandard mulvarae Granger causaly es s performed for he nonconegrang seres. The ECM s esed for Bangladesh and Indonesa for whch a conegrang relaon beween he causal facors canno be rejeced. The resuls of hese ess repored n Table. In general, he emprcal resuls do no provde evdence ha he economc growh s beng sgnfcanly affeced eher by he expor revenue growh or by he combne effor of expors and foregn deb, n he Souh and Souh-Eas Asan counres beween 970 o 997. Neher he ncluson of foregn deb servcng growh, hough brough some changes no he resuls, fal o dsplay any sgnfcan affec on he causaly beween expors and economc growh n he Souh and Souh- Eas Asan counres due o lack of unformy n he emprcal resuls obaned, wh he excepon of Bangladesh. In he case of Bangladesh esmaed resuls provde sgnfcan evdence of bdreconal and negave causaly beween expor revenue growh and GDP growh afer conrollng for foregn deb servcng. Ths may suppor he rejecon of boh expor-led growh and GDP growh-drven expors hypohess for Bangladesh n he perod. In he same perod evdence also ndcae bdreconal and negave causaly beween expor revenue growh and foregn deb servcng afer excludng GDP growh. Smlarly, we fnd srong evdence of negave and bdreconal causaly from foregn deb servcng o GDP growh afer excludng expor revenue growh. Ths mples ha for Bangladesh growh of exernal deb resuls n lower expor revenue growh and foregn deb servcng appeared o be negavely affecng he expor-growh relaonshp n hs poor counry. Whle n he case of Inda expor-led growh hypohess s beng suppored and foregn deb enhanced economc growh n he perod Whereas, we fnd undreconal and

12 602 Ahmed, Bu, and Alam Table Trvarae Analyss of Causal Relaonshp among GDP Growh (Y), Expor Revenue Growh (X), and Foregn Deb Servce (Z) for he Perod Null Hypohess Sum of he Coeffcens Causal Inference Counres F-sascs Souh Asa Bangladesh X (Z) > Y a * Rejec H O Z (X) > Y b * Rejec H O Y (Z) > X c ** Rejec H O Z (Y) > X d ** Rejec H O X (Y) > Z e * Rejec H O Y (X) > Z f Accep H O Inda X (Z) > Y *** Rejec H O Z (X) > Y ** Rejec H O Y (Z) > X Accep H O Z (Y) > X *** Rejec H O X (Y) > Z Accep H O Y (X) > Z Accep H O Paksan X (Z) > Y Accep H O Z (X) > Y Accep H O Y (Z) > X Accep H O Z (Y) > X Accep H O X (Y) > Z.76.7 Accep H O Y (X) > Z Accep H O Sr Lanka X (Z) > Y Accep H O Z (X) > Y Accep H O Y (Z) > X Accep H O Z (Y) > X Accep H O X (Y) > Z Accep H O Y (X) > Z..0 Accep H O Souh Eas Asa Indonesa X (Z) > Y Accep H O Z (X) > Y Accep H O Y (Z) > X Accep H O Z (Y) > X.69.6 Accep H O X (Y) > Z Accep H O Y (X) > Z Accep H O Connued 602

13 Economc Growh, Expor, and Exernal Deb Causaly 603 Table (Connued) Null Counres Hypohess Sum of he Coeffcens F-sascs Causal Inference Korea X (Z) > Y 0..5 Accep H O Z (X) > Y *** Rejec H O Y (Z) > X Accep H O Z (Y) > X Accep H O X (Y) > Z Accep H O Y (X) > Z Accep H O Malaysa X (Z) > Y Accep H O Z (X) > Y Accep H O Y (Z) > X Accep H O Z (Y) > X Accep H O X (Y) > Z ** Rejec H O Y (X) > Z ** Rejec H O Thaland X (Z) > Y Accep H O Z (X) > Y Accep H O Y (Z) > X Accep H O Z (Y) > X *** Rejec H O X (Y) > Z Accep H O Y (X) > Z Accep H O *Sgnfcan a he percen level, ndcang ha here s a sgnfcan causal relaonshp. **Sgnfcan a he 5 percen level, ndcang ha here s a sgnfcan causal relaonshp. ***Sgnfcan a he 0 percen level, ndcang ha here s a sgnfcan causal relaonshp. (a) X(Z) Y s nerpreed as X and Z jonly cause Y, afer excludng Z. (b) Z(X) Y s nerpreed as Z and X jonly cause Y, afer excludng X. (c) Y(Z) X s nerpreed as Y and Z jonly cause X, afer excludng Z. (d) Z(Y) X s nerpreed as Z and Y jonly cause X, afer excludng Y. (e) X(Y) Z s nerpreed as X and Y jonly cause Z, afer excludng Y. (f) Y(X) Z s nerpreed as Y and X jonly cause Z, afer excludng X. negave causal relaonshp beween foregn deb servce wh expor revenue growh afer excludng GDP growh. Ths may mples growh of exernal deb servcng resuled n lower expor revenue n Inda durng perod. Evdence for remanng counres neher suppor he hypohess of expor-led growh nor GDP growh-drven expors hypohess n he perod. Ths ndcaes ha, neher foregn loan nor IMF-led srucural programmes exer any sgnfcan mpac on he economc growh n hese counres n perod. Raher, may mples ha for hese counres growh of exernal deb resuls n lowerng boh economc growh and expor-revenue growh.

14 60 Ahmed, Bu, and Alam IV. CONCLUSION Recen emprcal sudes of expor-drven economc growh analyss whch nvesgae he drecon of causaly beween expor revenue and he growh of GDP, have been nconclusve. The major shorcomng wh he bvarae causaly analyss s he omsson of oher relevan varable, such as foregn deb servcng. Such omsson can bas he emprcal resuls. In hs sudy, foregn deb servcng s nroduced as a hrd varable whn rvarae causaly analyss of expors and economc growh for Souh and Souh-Eas Asan counres. The evdence ndcaes ha, generally, here s no jon feedback affec beween expor revenue, exernal deb servce and economc growh, wh noable excepon for Inda where undreconal causaly suppor ELG hypohess and foregn loans appeared o be effecve n enhancng GDP growh. The general concluson s ha boh he expor-drven GDP growh and GDP growh-led expor promoon hypoheses are no beng suppored n all he cases examned, especally n he oal perod, excep for Inda. Furhermore, he srucural adjusmen programmes, hough removed some of he economc dsorons and encouraged regular repaymen of he exernal deb faled o enhance economc growh and resul n lowerng expor revenue n hese counres, parcularly, hese effec are more pronounced n he case of relavely poor counres, such as Bangladesh. REFERENCES Afxenou, P. C., and A. Serles (992) Openness n The Canadan Economy: Appled Economcs 2, Bahman-Oskooee, M. Mohad, Hamd, and S. Glah (99) Expors, Growh, and Causaly n LDCs: A Re-Examnaon. Journal of Developmen Economcs 36, Balassa, B. (988) The Lessons of Eas Asan Developmen: an Overvew. Economcs Developmen and Culural Change 36, Bhagwa, J. (988) Proeconsm. Cambrdge, M.A.: NIT Press. Chow, P. C. Y. (987) Causaly beween Expor Growh and Indusral Developmen. Journal of Developmen Economcs 26, Darra, A. (987) Are Expors an Engne of Growh? Appled Economcs 9, Dodaro, S. (993) Expors and Growh: A Reconsderaon of Causaly. Journal of Developng Areas 27, Du, S. D. l, and D. Ghosh (996) The Expor Growh-Economc Growh Versus: A Causaly Analyss. Journal of Developng Areas 30, Engle, R. F., and C. W. J. Granger (987) Conegraon and Error-Correcon: Represenaon, Esmaon and Tesng. Economerca 55,

15 Economc Growh, Expor, and Exernal Deb Causaly 605 Feder, G. (982) On Expor and Economc Growh. Journal of Developmen Economcs 2, Granger, C. W. F. (969) Invesgang Causal Relaons by Economerc Mehods and Gross Specral Mehods. Economerca 37, Granger, C. W. F. (988) Some Recen Developmens n a Concep of Causaly. Journal of Economerca 39, Greenaway, D., and D. Sapsford (99) Expors, Growh, and Lberalsaon: An Evaluaon. Journal of Polcy Modellng 6, Henrques, I., and P. Sadorsky (996) Expor-Led Growh or Growh-drven Expors. Canadan Journal of Economcs 29, Hussan, I. (992) Resuls of Adjusmen n Afrca: Seleced Cases. Fnance and Developmen, June, 6-9. Islam, A. (992) Foregn Ad and Economc Growh: An Economerc Sudy of Bangladesh. Appled Economcs 2, 5 5. Jones, J. D. (989) A Comparson of Lag-Lengh Selecon Technques n Tess of Granger Causaly beween Money Growh and Inflaon: Evdence from The US, Appled Economcs 2, Jung, S. J., and P. J. Marshall (985) Expors, Growh and Causaly n Developng Counres. Journal of Developmen Economcs 8, 2. Kaldor, N. (967) Sraegc Facors n Economc Developmen. Ihaca, NY.: Cornell Unversy Press. Kavouss, R. M. (98) Expor Expanson and Economc Growh: Furher Emprcal Evdence. Journal of Developmen Economcs 8: 2. Khan, A. H., A. Malk, and L. Hassan (995) Expors, Growh and Causaly: An Applcaon of Conegraon and Error-Correcon Modellng. The Paksan Developmen Revew 35:. Kohl, I., and N. Sngh (989) Expors and Growh: Crcal Mnmum Effor and Dmnshng Reurns. Journal of Developmen Economcs 30, Krueger, A. O. (990) Asan Trade and Growh Lessons. Amercan Economc Revew 80, 08. Kwan, A., and C. Cosoms (990) Economc Growh and he Expandng Expor Secor: Chna, Inernaonal Economc Journal 5, Levne, R., and D. Renel (992) A Sensvy Analyss of Cross-Counry Growh Regressons. Amercan Economc Revew 82, Levy, V. (988) Ad and Growh n Sub-Sahara Afrca: The Recen Experence. European Economc Revew 32, Marn, D. (992) Is he Expor-led Growh Hypohess Vald for Indusralsed Counres? Revew of Economcs and Sascs 7, Moschos, D. (989) Expor Expanson, Growh and The Level of Economc Developmen: An Emprcal Analyss. Journal of Developmen Economcs 30,

16 606 Ahmed, Bu, and Alam Murhy, V., N. R. Ukpolo, Vcor, and J. M. Mbaku (99) Foregn Ad and Economc Growh n Cameroon: Evdence From Conegraon Tes. Appled Economcs, Leers, Pack, H. (99) Endogenous Growh Theory: Inellecual Appeal and Emprcal Shorcomngs. Journal of Economc Perspecve 8, Phllps, P. C. B., and P. Perron (988) Tesng for a Un Roo n Tme Seres Regresson. Bomerca 75, Ramamur, R. (992) Why are Developng Counres Prvasng? Journal of Inernaonal Busness Sudes 2, Romer, P. (989) Capal Accumulaon In he Theory of Long-run Growh. In R. Baso (ed.) Modern Busness Cycle Theory. Cambrdge, M.A.: Harvard Unversy Press. Sms, C. (972) Money, Income and Causaly. Amercan Economcs Revew 62, Thornon, D. L., and D. S. Baen 985) Lag Lengh Selecon and Tes For Granger Causaly beween Money and Income. Journal of Money, Cred, and Bankng 7, Toda, H. Y., and P. C. B. Phllps (993) Vecor Auoregressons and Causaly. Economerca 6, Tyler, W. (98) Growh and Expor Expanson n Developng Counres: Some Emprcal Evdence. Journal of Developmen Economcs 9,

17 Commens In hs paper he auhors have employed he sandard causaly ess developed by Granger and Sms o nvesgae causal relaonshp beween expors, economc growh and foregn deb servcng and as well as o denfy he drecon of such causaly. The macroeconomc daa for he perod s used o sudy he expors, growh and deb nexus for he egh Asan counres namely Bangladesh, Inda, Paksan, Sr Lanka, Indonesa, Korea, Malaysa and Thaland. A crcal perusal of he paper gves an mpresson ha he basc framework, he prmary hypohess and he mehodology adoped o analyse he rvae relaonshp beween expors, growh and deb are based on an oversmplfed approach and neve hnkng wh he resul ha he auhors come up wh confused and conradconary conclusons. The major problem n he hnkng of he auhors s refleced n he nroducon of he paper as hey compare he wo man sraeges o economc growh.e. mpor-subsuon ndusralsaon (ISI) and expor-led growh (ELG) sraegy. The auhors have clamed ha he lae 960s and 970s wnessed dsllusonmen wh ISI n many developng counres, leadng o a reducon n proecons measures. The 980s wnessed furher nensfcaon of lberalsaon measures as many counres rereaed from socalsm, regulaon and plannng. The auhors hen refer o a number of auhors such as Kaldor, Feder, Romer, Krueger, Marn, Bhagwa, Pack ec. o hghlgh he nheren dsadvanages of ISI and poenal srengh of ELG polces. The debae on he relave mers and demers of ISI and ELG sraeges s no ye concluded. However, he nroducon of he paper gves an mpresson ha he auhors nend o exend he scope of he debae by some orgnal nsgh and emprcal analyss. Conrarly, he man body of he paper s narrowly focussed on he causal relaonshp beween expors, growh and deb. The nroducory heme of he paper s herefore lef halfway whou developng o any logcal end. The man heme of he paper relaes o he causal lnkages beween expors, growh and deb. However, here s confuson n he mnd of auhors as hey fal o clearly dsngush beween deb as a sock varable and deb-servcng as a flow varable. Ths becomes clear when we look a he wo pvoal saemens of he auhors one followng he oher: If mos of he foregn borrowngs beng ulsed o fnance economc developmen acves va expors orened secors of an economy, as may be he case of Therefore, he omsson of foregn deb servcng varable may serously bas he emprcal causaly resuls beween expors and growh n he case of Asan economes, because for he sample of Asan counres beng under consderaon,

18 Aqdas Al Kazm 608 foregn deb servcng s a major dsbursemen em on her foregn expor earnngs budge. As he above saemens show, he auhors hbernae beween foregn loans and exernal deb-servcng as deermnans of economc growh and fnally reach he concluson ha he expeced posve relaonshp beween expors growh and economc growh may no be sgnfcanly obaned, because he resources from expors are dreced o servcng exernal deb nsead of nvesmen. Ths concluson s sascally derved whou supporng by logcal reasonng. The paper s prmarly a mechancal exercse makng an exensve use of he Granger causaly ess. However, he value of hese ess s lmed as hese are no relaed o any well-defned and clearly conceved hypoheses. For ha reason, he resuls of he ess make no subsanve and meanngful conrbuon o our undersandng of growh process, expor generaon or he mpac of deb servcng on he economy. In fac, he economerc mehods based on Granger ess when appled whn a dffused and blurred heorecal framework are bound o gve conradconary resuls whch s he case of hs paper. The conclusons of he paper need a serous analyss. The auhors sugges: The evdence ndcaes ha, generally, here s no jon feedback effec beween expor revenue, exernal deb servce and economc growh, wh noable excepon for Inda where undreconal causaly suppors ELG hypohess and foregn loans appeared o be effecve n enhancng GDP growh. Ths s followed by he general conclusons of he paper ha boh he expordrven GDP growh and GDP-growh-led expor promoon hypoheses are no beng suppored n all he cases beng examned especally n he perod excep for Inda. Obvously hese resuls are msleadng. The conclusons of he paper herefore are couner-nuve and provde no gudance for polcy formulaon for he developng counres. The Plannng Commsson, Governmen of Paksan, Islamabad. Aqdas Al Kazm