An Econometric Analysis of Export-led Growth in A Multivariate Var Framework: Evidence from India

Empirical evidence on export-led growth hypothesis is inconclusive and mixed. This paper uses time series econometric techniques to re-investigate the relationship between exports and economic growth in India during the period 1971-2005. The insertion of three additional relevant variables omitted in previous studies help to clarify the conflicting results from earlier studies on the Indian economy. The empirical results suggest that there exists a unique long-run relationship between exports, export instability, imports, investment, terms of trade and gross domestic product. For example, ceteris paribus a 10 per cent increase in the exports raises GDP by an estimated 2.76 per cent in the long run. The short-term dynamic behaviour of income growth function has been investigated by estimating an error correction model in which the error correction term has been found to be correctly signed and statistically significant. However, there is no strong evidence for short-run causality flowing from export growth to economic growth. JEL classification: C32, F10, O11