Export-led growth or growth-driven exports? The Canadian case

In this paper we investigate the export-led growth hypothesis for Canada by constructing a vector autoregression (VAR) in order to test for Granger (1969) causality between the following variables: real Canadian exports, real Canadian GDP, and real Canadian terms of trade. Two principal results emerge from our research. First, real Canadian exports, real Canadian terms of trade, and real Canadian GDP are co-integrated. This implies that there exists a long-run steady state among these three variables. Second, we find evidence that a one-way Granger causal relationship exists in Canada whereby changes in GDP precede changes in exports.