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AbstractThe study examines the nexus of Exports, Imports and Economic growth in Saudi Arabia, using annual data for the period 1990-2011. Granger Causality and Cointegration test were employed in the empirical analysis. Using Augmented Dickey-Fuller (ADF) and Phillip-Perron (PP)stationarity test, the variable proved to be integrated of the order one 1(1) at first difference.Johansen and Juselius Cointegration test was used to determine the presence or otherwise of a cointegrating vector in the variables. Both Trace and Maximum Eigenvalue indicated cointegration at 5% level of significance pointing to the fact that the variables have a long-run relationship. To determine the direction of causality among the variables, in the short run, the Pairwise Granger Causality was carried out. Economic growth was found to Granger Cause import. There was a unidirectional causality existing between export and import. But the result of the causation between Exports and economic growth and imports and economic growth was statistically insignificant.Keywords: co integration, granger causality; exports; imports; economic growthINTRODUCTIONThe relationship between Export, Import and Economic growth was an important issue among economists, and many researchers tried to investigate this relationship. There are four possible propositions on a relationship between export and economic growth: export-led growth (ELG), growth-driven export (GDE), feedback relationship between export and economic growth and finally, it is possible that there is no relationship. Some of the researchers found unidirectional causality and some of them found bidirectional causality and of course some of them could not found any evidence for causality between export and GDP.The export-led growth hypothesis (ELGH) assumes that export advancement is one of the key indicators of growth. It encourages that the overall progress of countries can be achieved not only by mounting the quantity of manpower and investment within the economy, but also by increasing exports.Another relationship of causality from growth to export is called growth-led exports and it tells that there is unidirectional causality from economic growth to exports but not vise versa. There is also a possibility of two way causality link from exports to growth and from growth to exports.Kaushik et al (2008) used Johansen's co-integration analysis and a vector error-correction model to investigate the relationship between economic growth, export growth, export instability and gross fixed capital formation(investment) in India during the period 1971-2005. The empirical results suggested that there exists a unique long-run relationship among these variables and the Granger causal flow is unidirectional from real exports to real GDP. For example, ceteris paribus, a 1% increase in exports raises GDP by an estimated 0.42% in the long run.The primary objective of this study is to estimate the long run relationship between economic growth, Export and import in Saudi Arabia for the period 1990-2011.To achieve this objective the paper is structured as follows; following this brief introduction is section two which is concerned with review of related literature, section three deals with methodology of the study, section four is concerned with empirical analysis of result while section five summaries and concludes the study.LITERATURE REVIEWMany research work exist that examines the causal interaction of export, domestic demand and economic growth; Lin and Li (2002) examined the contribution of foreign trade to China's economic growth and found that the previous studies carried on this subject underestimated the contribution of exports to GDP growth by overlooking the indirect impacts of exports on domestic consumption, investment, government expenditures and imports. They proposed a new estimation method and found that a ten percent increase in exports resulted in a one percent increase in GDP in the 1990s in China, when both direct and indirect contributions are considered. …
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