Export Sector Contribution to Economic Growth in Zimbabwe: A Causality Analysis

Abstract

Foreign currency reserves are of great significance to any developing country’s economic growth prospects. Exports have been for long decades regarded as a major source of foreign currency and a driving force for economic growth. This paper empirically examines the export-led growth paradigm for Zimbabwe using historical data from 1975 to 2013. The study uses unit root tests, cointegration analysis, Granger causality tests, vector auto regression (VAR), Vector Error Correction (VEC) and impulse response function (IRF) in the analysis. The study aims at determining whether GDP, exports and imports are cointegrated; whether exports Granger cause growth, and whether exports Granger cause investment. Using STATA, the study found that the variables were not stationary in levels, hence differencing them to attain stationarity. No cointegration was found among the variables, and the Granger causality tests indicated a one-way causality between GDP and exports. There is no strong evidence for short-run causality running from export growth to economic growth. However, the use of VEC model and IRFs reveals that a long-run relationship exists between exports and non-export GDP, thereby supporting an export-led growth. Possible policy implications are distilled which encourage policy makers to favour export diversification and global value chains in improving export competitiveness.

Keywords: Exports, Economic Growth, Cointegration, Granger Causality, VAR, VEC, IRF, Zimbabwe

JEL Classification: B41, C13, E61, F00, F02, F14, F15, F43, L51, N70, 01