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INTERDISCIPLINARY JOURNAL OF CONTEMPORARY RESEARCH IN BUSINESS
JANURAY 2011
VOL 2, NO 9
Where t is time period, Yt is aggregate production of the economy, At is total factor
productivity, Kt is real capital stock, Lt is employed labour force, Ht is human capital stock
and ε1t is usual error term and independent and identically distributed (IID). This study aims to
investigate if and how the different categories of exports affect economic growth via increases
in productivity, following Herzer et al. (2006), we assume that total factor productivity can be
expressed as a function of exports and other exogenous factors Ct:
A � f CM , MX , SMX , PX , C,
� ) ………………………. (2)
t
( t t t t 2t
� � � �
t , t t t t 2t
A � CM MX , SMX , PX , C , � ) ……….…………..….(3)
t
Where CMt refers to capital goods import and ε2t is usual error term and IID. CMt is
also considered to offer potential to boost productivity. So, the omission of this variable can
result in spurious conclusions. We combine equation (3) with equation (1) and obtain:
�
t
� �
t t
�
t
�
t
Y � C K H L CM MX SMX PX � ) …..……....………(4)
t
t
�
t
�
t
Where α, β, γ, δ, η, ρ and λ are elasticities of production with respect to Kt , Ht , Lt ,
CMt, MXt , SMXt and PXt respectively. ε3t is usual error term and IID. Taking natural logs (Ln)
on both sides of equation (4) gives an estimable linear function:
LnY
t
� C
t
��LnK
t
� �LnH
t
� �LnL
� �LnSMX
t
t
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3t
��LnCM
� �LnPX
t
��LnMX
t
�
�
4t
t
…(5)
Where all coefficients are constant elasticities, C1t =Ln Ct is a constant parameter, ε4t is usual
error term and IID, which reflects the influence of all other factors on LnYt. The estimates of
δ, η, ρ, and λ may serve to measure the productivity effects of capital imports, manufacturing
exports, semi-manufacturing exports and primary exports on economic growth. The categories
of exports are themselves the components of national income. A positive and statistically
significant correlation between exports and aggregate output is therefore almost inevitable,
even if there are no productivity effects. To remove this problem, it is necessary to separate
the economic influence of exports on output from the influence included into the growth
accounting relationship. Following Ghatak et al. (1997) and Greenaway and Sapsford (1994),
we deal with this problem by using the aggregate output, net of exports, NYt (NYt = Yt – MXt –
SMXt – PXt), instead of total output, Yt. By replacing Yt with NYt, we finally obtain:
LnNY
t
� C
t
��LnK
t
� �LnH
t
� �LnL
� �LnSMX
t
��LnCM
t
� �LnPX
t
t
��LnMX
�
�
5t
t
…(7)
Where ε5t is usual error term and IID, which reflects the influence of all other factors on lnNYt.
This equation estimates to determine the impact of MXt, SMXt, and PXt on economic growth
via increases in productivity. However, when estimating equation (6), we must take into