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Short- and long-run rolling causality techniques and optimal window-wise lag selection: an application to the export-led growth hypothesis

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  • Aviral Kumar Tiwari
  • Alexander Ludwig

Abstract

The literature devoted to the export-led growth (ELG) hypothesis, which is of utmost importance for policymaking in emerging countries, provides mixed evidence for the validity of the hypothesis. Recent contributions focus on the time-dependence of the relationship between export and output growth using rolling causality techniques based on vector autoregressive models. These models focus on a short-term view which captures single policy-induced developments. However, long-term structural changes cannot be covered by examinations related to the short-term. This paper hence examines the time-varying validity of the ELG hypothesis for India for the period 1960-2011 using rolling causality techniques for both the short-run and long-run horizon. For the first time, window-wise optimal lag-selection procedures are applied in connection with these techniques. We find that exports long-run caused output growth from 1997 until 2009 which can be seen as a consequence of political reforms of the 1990s that boosted economic growth by generating foreign direct investment opportunities and higher exports. For the short-run, export significantly caused output in the period 1998-2003 which followed a concentration of liberalization measures in 1997. Causality in the reversed direction, from output to exports, only seems to be relevant in the short-run.

Suggested Citation

  • Aviral Kumar Tiwari & Alexander Ludwig, 2015. "Short- and long-run rolling causality techniques and optimal window-wise lag selection: an application to the export-led growth hypothesis," Journal of Applied Statistics, Taylor & Francis Journals, vol. 42(3), pages 662-675, March.
    • Handle: RePEc:taf:japsta:v:42:y:2015:i:3:p:662-675
    DOI: 10.1080/02664763.2014.980790
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    1. Anne O. Krueger, 1978. "Foreign Trade Regimes and Economic Development: Liberalization Attempts and Consequences," NBER Books, National Bureau of Economic Research, Inc, number krue78-1.
    2. Josep Lluís Carrion‐i‐Silvestre & Andreu Sansó, 2006. "Testing the Null of Cointegration with Structural Breaks," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(5), pages 623-646, October.
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    2. Umut Akovali, 2020. "Beyond Connectedness: A Covariance Decomposition based Network Risk Model," Koç University-TUSIAD Economic Research Forum Working Papers 2003, Koc University-TUSIAD Economic Research Forum.

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