Page 16 - AEI Insights 2018 Vol 4 Issue 1

Furuoka et al, 2018

development (GDP). Furthermore, the Granger causality test failed to reject the null hypothesis
of no causality from economic development to exports to China. This suggests a unidirectional
causality between exports to China and economic development in Singapore.

Table 4: Results of Granger causality test (EXPC and GDP)

Exports to China (EXPC) would cause Economic development (GDP) would cause
economic development (GDP) expansion of exports to China (EXPC)

19.812*** 0.205
Notes: *** indicates the significant level at the 1 percent

The Granger causality test was also used to examine the causal relationship between exports to
the EU (EXPEU) and economic development (GDP). The empirical findings from the Granger
causality test are reported in Table 5. The Granger causality test failed to reject the null
hypothesis of no causality between exports to the EU (EXPEU) and economic development
(GDP). Furthermore, the Granger causality test also failed to reject null hypothesis of no
causality between economic development and exports to the EU. These findings indicate an
independent relationship between exports to the EU and economic development in Singapore.

Table 5: Results of Granger causality test (EXPEU and GDP)

Exports to EU (EXPEU) would cause Economic development (GDP) would cause
economic development (GDP) expansion of exports to EU (EXPEU)

0.204 0.771

Conclusion

In 2015, Singapore became the first ASEAN country to have successfully established a bilateral
free trade agreement with the EU, following failed ASEM negotiations for a comprehensive
ASEAN-EU FTA. Singapore has also formed a strong bilateral trade relationship with China
over the past two decades. Hence the current study was concerned with the effects of
Singapore’s exports to the EU and China on the country’s economic development.

To examine the relationship between Singapore’s exports to the EU and China, and its GDP,
the current study employed three econometric methods, namely the PP test, the Johansen test
and the Granger causality test, for its empirical analysis. In the first stage of the analysis, the
PP test was used to examine the unit root process of time-series data. The unit root test indicated
that time-series on exports and income can be considered as a nonstationary process. In the
second stage of analysis, the Johansen test was used to examine long-run relationships between
the two variables. The cointegration test suggested that no such relationship exists between
them. In the final stage of analysis, the Granger causality test was used to examine causal
relationship between the variables. The causality test identified the presence of a unidirectional
causality between exports to China and economic development in Singapore, in line with the
export-led economic development hypothesis. However, the causality test showed no causal
relationship between exports to the EU and economic development in the country. In other
words, there is an independent relationship between exports to the EU and economic
development, in line with the neutrality hypothesis. These findings can be interpreted such that

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