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Trade and GDP Growth: Causal Relations in the United States and Canada
Author(s) -
Zestos George K.,
Tao Xiangnan
Publication year - 2002
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.2002.tb00462.x
Subject(s) - granger causality , causality (physics) , economics , real gross domestic product , international economics , international trade , error correction model , monetary economics , econometrics , cointegration , physics , quantum mechanics
Causal relations between the growth rates of exports, imports, and the GDP of Canada and the United States are studied using the vector error correction (VEC) model. Utilizing time‐series annual data (1948‐1996), Granger causality tests are performed within the framework of the VEC model. Bidirectional causality is supported for Canada from the foreign sector to GDP and vice versa. A weaker relationship between the foreign sector and GDP is statistically supported for the United States. These results are also supported by comparing the total trade (exports plus imports) shares to GDP of the two neighboring economies. The Granger causality tests suggest that Canada is a more open economy than the United States and more trade dependent.