Comparative Analysis of the Impacts of Exports on Economic Growth of Selected Countries in Central Asia: A Quantitative Approach

Dr.  Muhammad Azam*

Abstract

Objective of the present study is the empirical analyses of the impacts of exports on economic growth of selected countries in Central Asia i.e., Kazakhstan, Uzbekistan and Turkmenistan. For analysis secondary data ranging from 1998 to 2008, obtained from World Development Indicator (various issues) and International Financial Statistics (various issues) are used. Simple linear regression model and ordinary least squares (OLS) technique have been used for empirically estimation of the impacts of exports on economic growth. During the study period, the impacts of exports on economic growth have been found statistically significant. However, the magnitudes of impacts of exports on economic growth for Uzbekistan and Turkmenistan have been found comparatively high than Kazakhstan. Thus, the outcomes of this study recommend that the policy makers of each country incorporated in this study needs to expand level of exports in order to improve socio-economic development.

Keywords: Exports, Economic Growth, Regression analysis, Central Asia

Introduction

Indeed, it is widely known as the level of exports of a country represents an indicator of economic development. The relationships between exports and economic growth have been observed positively correlated. Therefore, management authorities usually intend to encourage expansion in exports through various incentives such as, for instance, export subsidies etc . However, a recent microeconomic literature has tried to explain, from a theoretical and empirical point of views, that what are the characteristics that distinguish exporters from non exporters? Bernard and Jensen (1995), and a wide range of studies found that exporting firms usually perform better than domestic market oriented firms. The direction of exports need to be diversified as according to the Elborgh-Woytek, (2003), the focus of exports on a few primary commodities makes country highly vulnerable to changes in global market prices and developments in natural resource production. For efficient utilization of available scarce resources and for expanding global trade volume, freer trade in goods and services is highly beneficial (Bhagwati, 1973). Economists often assert that trade liberalization improves social welfare and alleviates poverty, because it generate jobs opportunities, fosters economic growth and improves consumer choice and living standard of the societies.
It has been observed that in the region, Kazakhstan remains faster growing country after Azerbaijan and the exports volume of the country was recorded US$ 38 billion, as per capita income estimated US$ 5113 were the highest in Central Asia during 2006. Similarly, Kazakhstan’s oil exports compose 62% of the total tradable exports. The details are as 49.1% is of service sector which is the largest contributor to the gross domestic product (GDP) after industry sector contributes 44.3% to the GDP of the country. Kazakhstan major trade partners are EU, Russia, China, Turkey and USA respectively .
Usually cotton and energy considers main source of earning of Turkmenistan. Turkmenistan’s exports increased in 2005 by 25% because the only country that have made little efforts to diversify their economies from traditional export sectors and had a very high export concentration index that was recorded 60.5.
Uzbekistan exports were estimated 35% larger than imports during 2006. Even Uzbekistan is almost seven times smaller than Kazakhstan and has the maximum population in the region of 27 million during 2008. GDP share in trade increased from 58.0 % to 60.3 % from 2003 to 2007. In addition, gold contributed for about 26% of Uzbekistan’s merchandise exports, cotton accounted 20% and services share in total exports was about 13.3 % during 2007. Uzbekistan’s major trade partners are EU, Russia, Turkey, Ukraine, Kazakhstan, Iran, and China, while the imports are primarily coming from the same countries as well as South Korea.

Literature Review

 

A large numbers of studies established positive relationship between exports expansion and economic growth, but no desirable literature found on the impact of exports and economic growth for Central Asian countries. However, positive supports for the export-led growth hypothesis (ELGH) 5 in 17 out of 32 countries have been found by Dutt and Ghosh (1996) and Xu (1996). Ruppel (1997) found positive relationship between exports and both per capita gross domestic product (GDP) and foreign exchange reserves. Gopinath and Vasavada (1999) found positive relationship among export prices, per capita GDP, and exchange rates accordingly. Sakka and Muttairi (2000) analyzed that in general there is no cointegration relationship between exports and GDP and found mixed results about the causal relationship between exports and GDP in Arab countries. Vohra (2001) investigated the role of export-growth linkage in India, Pakistan, Philippines, Malaysia, and Thailand respectively. Time series data for the period from 1973-1993 was used. The empirical results shows that exports have a positive and significant impact on economic growth. Young (2002), found that export growth is a positive contributor to economic development in low-income countries as well as middle-income countries. Though, the impact is somehow stronger in middle-income countries than in low-income countries. Abou-Stait, (2005) described that there are large numbers of empirical studies that confirm the strong association between exports and economic growth. Saima, et al. (2008) reported that an export-led growth hypothesis in Pakistan economy is supported in both the short and long run accordingly.

Objectives of the Study

 

The main objectives of this study are to know about the significance of exports in the national economic development and to investigate empirically the impact of exports on economic growth in selected countries of Central Asia i.e., Kazakhstan, Uzbekistan and Turkmenistan during the study period.

Methodology Procedure

 

Analytical Framework

The following simple linear regression model uses in this study;

Growth= f (Exports)                                                                   (1)

Symbolically equation (1) can be expressed as under;

                                                        (2)
Where
G= GDP growth rate (annual gross domestic product growth rate in %age),
EXP= exports as %age of gross domestic product
µ= stochastic term (shows effect of the other factors)

Equation (2) states that the impact of exports on economic growth expected to be positive.

Several empirical studies reveal that exports contribute to GDP growth more than just the change in the volume of exports. Many researchers, highlighting many beneficial aspects of exports, such as greater capacity utilization, economies of scale, incentives for technological improvements and efficient management due to competitive pressures abroad (Balassa, 1978; Al-Youssif, 1997). Voivodas, (1973) and Ram, (1987) described that trade, particularly exports, may encourage competition. According to Salvatore and Hatcher (1991) exports is a key explanatory variable contributing in the process of economic growth. Thus, an increase in exports expected to promote economic growth and expand market for the domestic producers and forces them to be more efficient in the wake of increased competition. Therefore, this study hypothesizes positive relationship between exports and economic growth.

Data Sources and Estimation Techniques

 

The present study is based on secondary data. In the beginning of this study it was decided to analyze empirically the impact of exports on economic growth for the entire Central Asian economies and even for long period of time. But due to non availability of data, this study has been limited only to Kazakhstan, Turkmenistan and Uzbekistan for the time period ranging from 1998 to 2008 only. For analysis secondary data have been utilized from World development Indicator (various issues) and International Financial Statistics (various issues) respectively. Simple linear regression model and the ordinary least squares technique have been used as an analytical technique for parameters estimation. Manitab statistical software has been used for computation analysis.    
                                                               

Results and Discussion

Empirical results of this study are given for Kazakhstan in Table 1, and Table 2, for Uzbekistan in Table 3 and Table 4 and such as for Turkmenistan are in Table 5 and Table 6 respectively. Overall results found are statistically significant and strongly support the study hypotheses. Table 1 show that the impact of exports found positively significant and the coefficient size of this variable found 0.268, in this case one percent change in exports will change economic growth of Kazakhstan by 0.268 percent. It means that due to promotion of exports, economic growth of the Kazakhstan would increase. Table 3 reveals that the impact of Uzbekistan’s exports on economic growth found positively significant at 1% level of significance. The coefficient size of this variable found 0.251, in this case one percent change in exports will change economic growth of Uzbekistan by 0.251 percent. Table 5 reveals that the impact of Turkmenistan’s exports on economic growth found positively significant at 1% level of significance. The coefficient size of this variable found 0.18, in this case one percent change in exports will change economic growth of Turkmenistan by 0.18 percent. The positive significant results of exports on economic growth also have been found by (Khan and Saqib, 1993; Ruppel, 1997; Gopinath and Vasavada, 1999; Abou-Stait, 2005; Chiara and Subash 2009).

Table 1: OLS Estimates

Country Name: Kazakhstan
G = - 5.20 + 0.269 EXP
Dependent variable: Annual GDP growth rate
Method: Ordinary Least Squared (OLS)
Number of Observations (N):  11
Predictor	Coef	SE Coef	T	P
Constant	-5.2	8.171	-0.64	0.54
EXP	0.2685	0.1653	1.62	0.139
S = 4.277       R-Sq = 22.7%     R-Sq(adj) = 14.1%

Table 2: Analysis of Variance

Source	DF	SS	MS	F	P
Regression	1	48.29	48.29	2.64	0.139
Residual Error	9	164.62	18.29
Total	10	212.91

Table 3: OLS Estimates

Country Name: Uzbekistan
G = - 2.10 + 0.251 EXP
Dependent variable: annual GDP growth rate
Method: Ordinary Least Squared (OLS)
Number of Observations (N):  11
Predictor	Coef	SE Coef	T	P
Constant	-2.103	2.262	-0.93	0.377
EXP	0.25107	0.0674	3.73	0.005
S = 1.760       R-Sq = 60.7%     R-Sq(adj) = 56.3%

Table 4: Analysis of Variance

Table 5:  OLS Estimates

Table 6: Analysis of Variance

Conclusion and Policy Implications

 

Obviously increase in exports represents improvement in economic development of a country and expansions in exports improve social welfare of the people. The rapid growth economies are usually characterized by speedy expansion in exports. The main objectives of this study are to analyze empirically the impact of exports on economic growth of selected countries of Central Asia i.e., Kazakhstan, Turkmenistan and Uzbekistan during 1998 to 2008. The impacts of exports on economic growth found are statistically significant in this study during the study period. The positive impact of exports on economic growth demonstrates that expansion in exports is highly important for the encouragement of desirable level of economic development in all selected countries of Central Asia i.e., Kazakhstan, Turkmenistan and Uzbekistan.  However, it has been observed from the empirical results that impact of exports on economic growth for both the countries i.e., Uzbekistan and Turkmenistan are high if compared with the results of Kazakhstan. Thus, findings of the present study suggest that the policy makers of each country included in this study needs to expand volume of exports in order to boost socio-economic development.

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