Impact of Export and Import on Economic Growth: Time Series Evidence from India

Abstract

This paper examines the cointegration and causal relationships between export, import, and economic growth in India using quarterly data from 1996:Q2 to 2019:Q2. Stationarity properties of the time series data are investigated using Augmented Dickey-Fuller (ADF) and Phillips-Perron (PP) unit root tests, and the existence of cointegrating relationship is studied using Johansen’s cointegration test. Finally, the causal relationships between the variables are examined using Vector Error Correction Model (VECM). The results show that, under both tests, the time series variables are non-stationary at their levels and are stationary at their first differences. The Johansen’s cointegration test shows the existence of a long run equilibrium relationship among the variables. The results from the VECM indicate that there is a unidirectional causal relationship running from economic growth to import in India. This implies that with an increase in the income of the nation, the nation’s spending will increase, and some of the spending will be on import.