Testing Export-Led Growth Hypothesis in Nepal Using Multivariate Cointegration Approach

Abstract

We examine the relationship between exports and output for a small developing country Nepal which has received little attention in such literature. Using multivariate cointegration and vector error correction model for the data of 1975 to 2011 we find long-run relationship between real exports, investment, and real GDP and bidirectional long run and short run causality between real exports and real GDP. This implies that in case of Nepal, exports in an 'engine of the growth' and growth is also 'the engine of exports'.