Export-Led Growth or Growth-Driven Export? New Evidence from Granger Causality Analysis on OECD Countries

This paper investigates the possibility of Granger causality between the logarithms of real exports and real GDP in twenty-five OECD countries, between 1960 and 1998. Two complementary testing strategies are applied. First, depending on the time series properties of the data, causality is tested with Wald tests within finite-order vector autoregressive (VAR) models in levels and/or in first-differences. Then, with no need for pre-testing, a modified Wald procedure is used in augmented level VAR systems. In both cases we experiment with alternative deterministic trend degrees. Our study illustrates how sensitive the Granger causality test results can be to different methods and model specifications. This fact should warn applied researchers to take extreme care when interpreting such results. With this limitation in mind, upon our analysis we are confident to claim that there is no causality (NC) between exports and growth in the Netherlands, export causes growth (ECG) in Belgium and Iceland, growth causes export (GCE) in Canada and Japan, and there is two-way causality (TWC) in Sweden and in the UK. Although with less certainty, we also suspect that there is NC in Hungary, France, Greece and Luxembourg, ECG in Australia, Austria, Denmark, Ireland, Spain and Switzerland, GCE in Finland and Korea. However, in the case of Italy, Mexico, New Zealand, Norway, Portugal and the USA the results are too controversial to make a simple choice