Causal Relationship Among SME’s Import, Export, Deposits, and Small Manufacturing Contribution to GDP – Toda Yamamoto Analysis

Abstract

Purpose: The purpose of the study was to identify the causal relationship between Pakistani SMEs' imports, exports, domestic deposits, and GDP in the small manufacturing sector over 2007-Q1 to 2020-Q4. Design/Methodology/Approach: Granger causality is a revolutionary and cutting-edge econometric technique that was presented by Toda and Yamamoto (1995). This technique enabled us to identify various kinds of observations, all of which are discussed in detail in the concluding part of the article. Findings: Four-causal relationship among the variables which revealed the empirical results. (i) fluctuations in exports values, total imports values and deposit in domestic currency may cause the changes in GDP of small manufacturing sector in Pakistan (ii) fluctuations in GDP of small manufacturing and deposits in domestic currency may cause the changes in total exports value in SME sector in Pakistan while changes in total imports value do not make the cause of changes in total exports value in Pakistan SME sector (iii) fluctuations in GDP of small manufacturing and total exports value may cause the changes in total imports value in SME sector in Pakistan while changes in deposit in domestic currency do not make the cause of changes in total imports value in SME sector in Pakistan and (iv) fluctuations in GDP of small manufacturing, total exports value, and total import values does not make the cause of changes in deposit in domestic currency in SME sector in Pakistan. Implications/Originality/Value: Using secondary data and an estimation method to take into account new factors, the study also makes a big contribution to the ongoing research on SMEs in Pakistan.