EXPORTS-GROWTH NEXUS IN PAKISTAN: Cointegration and Causality Analysis

This study empirically investigates the exports-growth nexus using annual time series data for the period 1973-2013 for Pakistan. Under augmented production function, it examines the effects of exports, human capital (pursuing new growth theory) and capital formation on GDP growth performance. The ARDL approach is employed to determine both the short-run and the long-run relationships. Moreover, the Granger causality test is used to explore causal direction among the variables. The empirical results show that real exports, real gross fixed capital formation, human capital, and real GDP are cointegrated when real GDP, real exports and real gross fixed capital formation are the explained variables. The short-run and the long-run coefficients conform to theoretical anticipation and demonstrate that exports, human capital and capital formation have a substantial and positive effect on GDP growth of Pakistan. The Granger causality analysis reports bi-directional causality, running between exports and GDP growth in the short-run and the long-run. The study verifies the validity of ELG hypothesis in Pakistan. The study, therefore, suggests that a country like Pakistan should implement and enforce export promotion strategies as a part of its appropriate development strategy to get sustainable economic growth.