Trade-led growth hypothesis: An empirical analysis of South Asian countries

In this paper we examine trade-growth nexus using data from six Asian countries. We apply the ADF unit root test to check for stationarity; and the autoregressive distributed lag (ARDL) approach for a long-run relationship among exports, imports and economic growth. For the direction of causality, we implement the modified Granger Causality test. We find that the export-led growth model is relevant to all countries except Pakistan, while the import-led growth model is relevant to all countries. The growth-led export model applies to all countries except Bangladesh and Nepal. The growth-led import model and export-import model are relevant for all countries in the sample. The results show that domestic and overseas demand contribute to economic growth and employment generation. Growth accruals through import-led model augur well for the countries studied. Our findings point to the potential for growth through tapping domestic demand in the event of global recession. It also appears that opportunities of joint catering for domestic demand through south-south trade expansion are possible.