CARIFORUM and UK EPA Study

APPENDIX III – EMPIRICAL FRAMEWORK FOR KEY REGRESSION VARIABLES AND ANALYSIS

The relationship between trade, especially exports, and economic growth has an epic history and is deeply embedded in neo-classical economic theory and practice; see Keesing (1967) and Krueger (1978). This theoretical link is predictable given the fact that exports have been traditionally considered to be the engine of economic growth and development. Today, the concept of sustainable development is integrally related to debates about trade and plans for global development. Various scholars, including Nurkse (1961) and Tahir et al. (2015) have highlighted the functional relationship between trade and economic growth. The outward orientation of exports is widely measured by a function of the trade flow of exports within the export-led growth (ELG) studies. It is noted that trade is prominently highlighted in a number of Sustainable Development Goals (SDGs). Analogously, the neo-classical export led growth (ELG) theory maintains that exports promote economies of scale, labor productivity, progress through technological improvements, and the production of quality enhanced goods and services, as well as reduce current account pressures, lessen the unemployment and other production factors and reduce economic inefficiencies (Fatemah and Qayyum, 2018). The contributions of Helpman and Krugman (1985), and Kruger (1985) are also noteworthy. Dutt and Ghosh (1996) and Xu (1996) found supportive results for trade and economic activity among 17 out of 32 economies. Their analysis cut across different data sets such as time series, cross sectional and panel data. Furthermore, Fatemah and Qayyum (2018) note that in many models the trade and growth nexus has been emphasized, while Dutt et al. highlight that one of the major variables that enter the growth function is trade. Similarly, exports have prominently figured as the main engine of growth in South East Asia.

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