The export-income relationship in developing countries: evidence from panel cointegration

This paper quantifies the contribution of exports to economic growth in developing countries. We apply recently developed panel cointegration methods which admit structural breaks to examine bivariate export-income relationships for a panel of 47 developing countries for annual data for 1970–2004. Results show that long-run relationships exist and there is bi-directional causality between exports and income; structural breaks occur in most country-specific relationships and most occur in the 1980s following the debt crisis of 1981–82; the income-export elasticity is 0.22 while the export-income elasticity is 1.13. Structural differences also exist in the relationships by broad income group and the impact of exports on income increases while that of income on exports falls as income increases. Export-promotion policies are not misplaced and the trade liberalisation policies advocated and sometimes imposed by the World Bank which aim to stimulate economic development seem justified but should by tailored to individual country needs.