The relationship between international trade and economic growth has been statistically tested in numerous studies. Statistical problems such as omitted variables, simultaneity, measurement errors, and nonstationarity may have been responsible for the...
The relationship between international trade and economic growth has been statistically tested in numerous studies. Statistical problems such as omitted variables, simultaneity, measurement errors, and nonstationarity may have been responsible for the “mixed” results of these studies. This paper addresses the shortcomings of previous econometric studies and focuses on the problem of simultaneity by comparing the results of single and simultaneous equations regression models. Modern time series methods are applied to data from ten Asian economies. Either exports or imports, or both, are shown to be related to GDP growth in the majority of Asian countries examined, but not all. The countries for which trade was not related to economic growth were India and Pakistan, two of the most “inward-oriented” economies, according to a World Bank classification of countries` trade orientations. But, the trade-growth connection was statistically confirmed for eight different Asian countries, not just for the “strongly outward-oriented” Asian tigers. This robustness of the trade-growth relationship should be encouraging to those policymakers throughout Asia who are choosing to let international trade play a more prominent role in their economies. (JEL Classification: F14, F43, 053, C3)