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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
Abstract
Short and Long Run Dynamics of Export Composition
and Economic Growth: Empirical Evidence from Pakistan
Asim Iqbal
Ph.D Scholar at GCU,Lahore
M.Wasif Siddiqi
Associate Professor, Economics Department.GCU,Lahore
M.Afzal Tabassum
Faculty Benett International College,London
JANURAY 2011
VOL 2, NO 9
The study attempts to empirically investigate that which component of total exports
(manufacturing, semi-manufacturing and primary exports) is essential for boosting economic
growth in Pakistan for the time period of 1972-2005. The empirical analysis was based on
Johanson Cointegration, Error Correction Model (ECM) and Granger causality based on Toda
and Yamamoto (1995) procedure. In the production function framework, the total factor
productivity was assumed to be a function of composition of total exports and capital imports.
The Johansen cointegration suggests that semi-manufactured exports and manufactured
exports have long run and contemporaneous effects on the economic growth. However, the
results of ECM reveals that in short run manufactured exports is more responsible to boosting
economic growth for Pakistan.
Key Words: Components of Exports, Economic Growth, Cointegration, Pakistan
1. Introduction
The argument concerning the role of exports as one of the main deterministic factors of
economic growth is not new. In 1817, David Ricardo proposed that trade enables a country to
specialize in the production of a commodity in which it has a comparative advantage. The
specialization of production can increase the efficiency of resource utilization by increasing
the rate of capital formation and improving the growth rate of total factor productivity
(Khalafalla and Webb, 2001).
The income generated from exports of goods and services is one of the most key factors of
foreign exchange earnings that relieves the pressure on the balance of payments, increases the
investment and generates employment opportunities. The strategy of export led growth (ELG)
gives incentives to domestic as well foreign producers. ELG strategy increases the potential to
compete in the international market by producing high quality products. Moreover, exports
increase intra-industry trade which helps the country to integrate and trim down the impact of
external shocks on the domestic economy.
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