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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
JANURAY 2011
VOL 2, NO 9
Fosu (1990), Greenaway at al. (1999) and Crespo et al. (2003) investigated the important issue
of export composition and economic growth. They argued that exports of manufacturing
products are less sensitive to the cyclical changes in the international market compare to
exports of raw and intermediate goods. Most of the less developed countries export
intermediate and primary products therefore the changes in the international market can
decline their exports which then affect the economic performance.
Sharma and Panagiotidis (2005) pointed out that the econometric methods used in most of the
empirical investigations are dominated by the work of Granger (1969, 1988), Sims (1972),
Engle and Granger (1987), Johansen (1988) and Johansen and Juselius (1990). The study by
Akbar and Naqvi (2000) was aimed to find out relationship and causality between export
diversification and economic growth in Pakistan from 1972-1998. They found a significant
positive relationship between export diversification and economic growth. However, the
direction of causation ran from economic growth to export diversification.
There are also some studies related to the economy of Pakistan. Khan and Saqib (1993) found
strong relationship between exports and economic growth using simultaneous equation model.
Mutairi (1993) found no support of exports for economic growth. Ahmad, et al. (2000)
investigated the relationship between economic growth, exports and foreign debt for Asian
countries including Pakistan using tri-variate causality framework. They rejected the export
led growth hypothesis for all countries included in the sample except Bangladesh. Kemal. et
al. (2002) investigated the relationship between exports and economic growth for five South
Asian countries including Pakistan. They found no evidence of causality for Pakistan between
exports and economic growth in short run. But they found unidirectional causality from export
to GDP in the long run 1 . While Khan, et al. (1995) found strong evidence of bi-directional
causality between exports and economic growth for Pakistan.
Ruiz-Napoles (2001) argued that even in the cases where we have a positive effect of
increasing exports on production expansion, such effect might be limited and offset by
increasing manufacturing imports displacing domestic production. Time series evidence fails
to provide a conclusive support to ELG hypotheses whereas wide ranges of cross sectional
studies support the positive and strong association between exports and growth. In other
words, time series studies find less conclusive association between exports and growth
whereas; cross section researches appear to support the positive relationship.
3. Specification of Econometric Model and Data Sources
3.1 Econometric Models
Most of the times, empirical studies of economic growth begin with the neoclassical model,
originally proposed by Solow (1956, 1957) and extended by Mankiw, Romer, and Weil
(1992) to include human capital. This model appears in the general form as:
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� A K H L � …………………...…………………….(1)
Yt t t t t 1t
1 Cited from Shirazi N.S., and T.A.B. Manap (2004)
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