Exports, imports and economic growth in India: Evidence from cointegration and causality analysis

Abstract

The relationship between exports, imports and economic growth in India has been analysed by a large number of empirical studies in the recent past. However, this paper examines the relationship between exports, imports and economic growth in an unexplored way. The study uses monthly dataset for the first time. Johansen’s Co-integration and Granger causality tests were employed in the empirical analysis, using Augmented Dickey Fuller (ADF) and Dickey Fuller (DF) tests. The present study covers data of 12 years’ period from April 2005 to March 2017. The variables used for the study are of I (1) i.e. first order of difference means that they are stationary at first order difference. The Johansen and Juselius Cointegration test was used to determine the presence of a cointegration vector in the variables. Both the ‘Trace and Max-Eigen’ values specified cointegration at 5 percent level of significance, specifying that the variables have a long run relationship. The results of the Granger causality test show that there is bidirectional causality running between exports and economic growth (IIP) as well as imports and economic growth. Therefore, the study confirms that there is bidirectional causality has been found between exports and economic growth which support export-led growth and growth-led export hypothesis. However, this study finally suggests that both growth as well as export promotion strategy are to be pursued consistently with an emphasis on sustainable and inclusive growth.

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