Trade and growth nexus in Iran: An application of Bounds Test approach to level relationship

Abstract

This paper investigates the long-run relationship between exports, imports and economic growth in the Iranian economy using annual data over the period of 1960-2007. We extend the Feder's model (1982) by entering a proxy for human capital. The Bounds Test approach to level relationship developed by Pesaran et, al. (2001) has been adapted in the present study where it can be applied irrespective of order of integration of the variables. Results reveal that while there is significant and positive relationship between exports and economic growth, the effect of imports is insignificant and also human capital has a negative effect on growth both in short and long term periods.