On the export-led growth hypothesis: the econometric evidence from China

The export-led growth hypothesis is tested by estimating an augmented growth equation on the basis of times series data from China. The Granger no-causality procedure developed by Toda and Yamamoto (Journal of Econometrics, 66, 1995) was applied to test the causality link between exports and economic growth in a VAR system. Three distinct features in this paper stand out compared to earlier studies on China: first, we have gone beyond the traditional two-variable relationship by building a VAR model in the production function context to avoid a possible specification bias; second, we follow Riezman, Whiteman and Summers (Empirical Economics, 21, 1996) to test the export-led growth hypothesis while controlling for the growth of imports to avoid producing a spurious causality result; third, we test the sensitivity of causality test results under different lag structures along with the choice of optimal lags; in particular, the methodology developed by Toda and Yamamoto (1995) is expected to improve the standard F-statistics in the causality test process. The results indicate a bidirectional causality between exports and real industrial output in China in the 1987-1996 period. The export-led growth hypothesis, defined as a unidirectional causal ordering from exports to output, is therefore rejected in the case of China despite the positive contribution of exports on China's real output.