Exports, imports and economic growth in China: an ARDL analysis

Purpose - The purpose of this paper is to investigate the export‐led growth, growth‐led export, import‐led growth, growth‐led import and foreign deficit sustainability hypothesis in the case of China, using annual time series data from 1978‐2009. Design/methodology/approach - For estimation evidence this study employs the Phillips Perron unit root tests to examine the level of integration and the autoregressive distributed lag (ARDL) approach is employed to determine the long run relationship, and the direction of long run and short run causal relationship is examined by using modified Granger causality test. Findings - The results confirm the bidirectional long run relationship between the economic growth and exports, economic growth and imports, and exports and imports. These findings guided the authors to conclude that the exports‐led growth, growth‐led exports, imports‐led growth and growth‐led imports hypothesis is valid, and foreign deficit is sustainable for China. The long run elasticities are as follows: the elasticity of economic growth with respect to exports is 0.591, and elasticity of exports with respect to economic growth is 1.635. The elasticity of economic growth with respect to imports is 0.621, and elasticity of imports with respect to economic growth is 1.392. Further more the elasticity of exports with respect to imports is 1.322, and imports elasticity with respect to exports is 0.975. Originality/value - This study utilizes the relative new cointegration method of ARDL approach. The empirical findings of this study are vital for policy makers of China in the formulation of trade policies.