On the International Trade and Economic Growth Nexus in New Zealand

Abstract

This study examines the effects of international trade and investment on output and tests the Granger‐causal nexus among trade, investment and economic growth in New Zealand for the period 1954–2007. The results provide consistent support for the long‐run effects of trade and investment on output. The optimal single‐equation and the vector autoregression‐based system estimates of the model consistently suggest positive and significant long‐run effects of exports and investment on output. The effects of imports on output are positive across all and statistically significant across most estimators. The Johansen test for cointegration suggests the presence of one equilibrium relationship among the model variables. The JMN test for cointegration with structural breaks provides mixed support, while the end‐of‐sample cointegration breakdown tests lend dominant support for cointegration among the model variables. The positive and significant long‐run effects of exports and investment on output underline the need for the promotion of exports and increase in investment to foster higher levels of output and economic growth.

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