The relation between trade liberalization and economic expansion is a controversial
topic in economics. Despite the differences in their econometric techniques,
various authors have tried to answer the question: What is the mechanism by
which higher rates of growth of exports are associated with higher growth rates of
real output? This paper re-examines the export-led growth hypothesis employing
data from four European countries, Greece, Ireland, Portugal and Spain. For a long
period of time these countries experienced similar macroeconomic features and
constituted a competitive group in the European Union. The interesting aspect
of the econometric framework adopted in this paper is that Granger multivariate
tests based on error correction modeling are examined for robustness using
impulse response functions. Such an empirical procedure will, it is hoped,
provide insights into the appropriate long-run strategy that should be applied
by Greece, Ireland, Portugal and Spain, if they pursue the increase of exports in
order to enhance the level of economic growth. The sensitivity analysis of this
paper provides evidence for the export-led growth hypothesis for Ireland but the
hypothesis is rejected for the other three countries.
