ON TRADE AND ECONOMIC GROWTH: FURTHER EVIDENCE

The relationship between exports and economic growth occupy pivotal positions in current policy discussions. In view of the diametrically opposite results obtained by Bahmani-Oskooee et al. (1991) and Axfentiou and Serlitis (1991) the relationship remain largely unsettled. We have tried to resolve the growth-trade nexus by studying twelve countries of South Asia, Far-East and Australia. Utilising the Granger concept of causality, and using the Finite Prediction Error (FPE) and Hocking’s Sp criterion of model selection we were able to find substantial evidence in favour of the hypothesis that trade causes economic growth. This result was achieved by using a different data source and model selection criteria from those mentioned in the above studies. I have benefitted enormously from discussions with D.P. Chaudhri, Clive Granger, Amnon Levy and Ed Wilson. However, I am alone responsible for the errors. 1