Page 14 - AEI Insights 2018 Vol 4 Issue 1

Furuoka et al, 2018

(Equation 9) and non-rejection of the first hypothesis (Equation 8) would provide the empirical
evidence for this hypothesis.

Next, the third hypothesis is related to the feedback effect between exports and economic
development (FEED), whereby there is a mutually reinforcing relationship between exports
and economic development. The FEED hypothesis would be substantiated if the empirical
findings showed a bidirectional causality between exports and economic development. The
rejection of both the first hypothesis (Equation 8) and the second hypothesis (Equation 9)
would provide empirical evidence to support this hypothesis.

Finally, the fourth hypothesis is on the neutrality between exports and economic development
(NEED). According to this hypothesis, there is a neutral relationship between exports and
economic development. The NEED would be substantiated if there were no causal relationship
between exports and economic development. The non-rejection of the first hypothesis
(Equation 8) and the second hypothesis (Equation 9) would provide empirical evidence for this
hypothesis.

Findings and Discussion

The current study employed three different econometric methods, namely the Phillips-Perron
(PP) test, the Johansen test together with the error correction model (ECM), and the Granger
causality test to examine the impact of Singapore’s exports to China and the EU on its economic
development. In the first stage of empirical analysis, the PP test was used to examine the unit
root process of the time-series data on exports and income. The empirical findings from the PP
test are reported in Table 1.

Table 1: Results of PP unit root test

Variables Intercept Intercept and trend
GDP -2.456[10] -1.475[10]
ΔGDP -13.895[9]*** -14.412[9]***
EXPC 0.347[1] -5.066[7]***
ΔEXPC -17.020[1]*** -16.798[0]***
EXPEU -2.444[8] -1.320[8]
ΔEXPEU -14.143[8]*** -14.592[8]***
Notes: *** indicates the significant level at the 1 percent
Numbers in bracket indicate the optimal bandwidth which is determined by Newey-West
method

As the results clearly indicate, the PP test failed to reject the null hypothesis of unit root for
economic development (GDP) at level. On the other hand, the PP test rejected the null
hypothesis for the same variable at first difference. The PP test also failed to reject the null
hypothesis of unit root for the exports to China (EXPC) but rejected the null hypothesis for the
same variable at first difference. Similarly, the PP test failed to reject the null hypothesis of
unit root for the exports to EU (EXPEU) but rejected the null hypothesis for the same variable
at first difference. Despite some minor differences, empirical findings from the PP test
indicated that exports to China, exports to the EU and economic development at level could be
considered as the unit root process. Furthermore, findings also indicated that these three

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