Causality between Exports and Economic Growth in South Africa: Evidence from Linear and Nonlinear Tests

Abstract

This paper investigates the dynamic causal link between exports and economic growth using both linear and nonlinear Granger causality tests. We use annual South African data on real exports and real gross domestic product from 1911-2011. The linear Granger causality result shows no evidence of significant causality between exports and GDP. The relevant VAR is unstable, which undermines our confidence in the causality result identified by the linear Granger causality test. Accordingly we turn to the nonlinear methods to evaluate Granger causality between exports and GDP. First, we use Hiemstra and Jones (1994) nonlinear Granger causality test and find a unidirectional causality from GDP to exports. However, using a more powerful and less biased nonlinear test, the Diks and Panchenko (2006) test, we find evidence of significant bi-directional causality. These results highlight the risk of misleading conclusions based on the standard linear Granger causality tests which neither accounts for structural breaks nor uncover nonlinearities in the dynamic relationship between exports and GDP.JEL Classifications: C14, C32, F43, O40

Re-Visting the Electricity-Growth Nexus in South Africa

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Nonlinear causality between crude oil price and exchange rate: A comparative study of China and India

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Short- and long-run rolling causality techniques and optimal window-wise lag selection: an application to the export-led growth hypothesis

“…If there are no structural breaks in the cointegration coefficients β, Equation (1) can be directly estimated by, for example, maximum likelihood estimation according to Johansen [14]. If there are structural breaks, break locations should be estimated consistently and residuals from each regime have to be inserted for e t−1 = β X t−1 in Equation (1). Time-varying estimates for α i,j (t) are obtained in a second step.…”

“…We refer the interested reader to the comprehensive literature review prepared by Ajmi et al [1]. In this work we examine the case of India whose reforms of the 1990s opened up its economy and are thought to have spurred overall growth.…”

“…1 The short-term view captures single policy-induced developments and is therefore relevant for the examination of the question whether policy measures influenced the causality between export and growth. Yet, as India's structural transformation of an economy from agriculture to non-agriculture is a longer-term secular phenomenon [28], the study of its impact on the issue whether export leads growth or vice versa should contain a long-run perspective as well.…”