ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Investment, Exports and Growth-A Sceptical Note

Investment, Exports and Growth A Sceptical Note Aditya Bhattacharjea IN a recent paper in this journal, Athukorala (1996) has eriti ciscd the earlier contribution of Patnaik and Chandrasekhar (1996, hereafter PC). PC had contested the view that growth in developing countries can be explained by the "efficiency of resource use", by showing that the growth rates of GDP as well as exports could be substantially explained by theinvestment/GDPratioalone in cross-country regressions. Athukorala argued that such single-variable regressions were inadequate to establish the superiority of the 'investment' view over the 'resource allocation' view. He proceeded to show that even in the original PC data set, both the investment ratio and the growth rate of exports were significant in explaining growth, althoughfhecoefficient on the former was much less than that estimated by PC. Also, he showed that export growth in turn could be explained by the investment ratio and a dummy variable which distinguished between inward and outward-oriented countries thereby relating growth more directly to the policy regime. While there is merit in Athukorala's methodological criticism (and also that of Dubey 1996, with which I am not concerned), my purpose in this note is to show that his analysis is Hawed, and that in fact his own results as well as several other empirical studies show the explanatory rote of capital accumulation in growth to be more secure than that of trade-related variables.

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