Abstract
The main objective of this study has been to investigate whether augmenting service sector GDP can
increase exports and imports or augmenting exports and imports accelerate service sector GDP. The
study uses two approaches, namely Granger causality test in VAR analysis and Pesaran et al. (2001)
ARDL approach for long run relationship analysis. Ini- tially, the study develops three equations,
and finds out that there exists long run relationship when exports and imports are used as
dependent variables, but when service sector GDP is used as dependent variable, the null hypothesis
of no co- integration is not rejected
Consequently, the model is left with two error correcfion equa- fions, namely: (i) when exports are
used as dependent vari- able, and (ii) when imports are used as dependent variable. The ECT of both
equafions are having appropriate signs and are found significant at 1% level. In Granger Causality test, between service sector GDP and exports, there exists a unidi- recfional relafionship, where service sector GDP only causes exports, whereas in long run neither imports nor exports causes service sector GDP as there is no co-integrafion in this case. Hypothesis for co-integrafion has been accepted even at 10% level. In imports and exports cases, a unidirecnonal relafionship exists where exports causes imports only; these results are aligned with the results of Konya et at. (2009) and Afzal and Murat (2010) which explain co-integrafion between import and export.JEL Classification:F13, F14, F18, F31
Mohammad Shujaat Mubarik, Aurangzeb. (2013) Relationship between service sector GDP and im- port & export trade: a case of Pakistan, Jinnah Business Review, Volume 1, Issue 1.
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