Testing export-led growth in South Asia

The purpose of this paper is to test the export-led growth hypothesis for South Asia, a diverse region consisting of one large country, India, surrounded by a number of medium and small countries such as Pakistan, Bangladesh, Sri Lanka, Nepal, Bhutan and Maldives. To test this, the study employs cointegration and error-correction modelling, using data from the International Financial Statistics of the IMF. Findings - The study produces fairly mixed results, and does not find any conclusive evidence in favour of export-led growth. While India, Maldives and Nepal exhibit export-led growth, Bangladesh and Bhutan show the opposite result of growth-led exports. In Pakistan and Sri Lanka no causality in either direction was found. The mixed nature of the results is further confirmed by taking a common time period since 1980. Practical implications - South Asia is one of the poorest regions of the world; so success or otherwise of export-led growth is of great interest for policy purposes. For example, the finding of export-led growth for the largest economy of the region, India, is particularly heartening as, by opening up its markets further to the other countries of the region, it can fuel growth in the entire region.