The drivers of economic growth in South Asia: evidence from a dynamic system GMM approach

The drivers of economic growth in South Asia: evidence from a dynamic system GMM approach

Purpose – The purpose of this paper is to explore the drivers of economic growth in South Asia region for the period of 1975–2016 using the World Bank data.

Design/methodology/approach – Panel corrected standard error (static estimation) approach and one-step system generalised method of moments (dynamic estimation) approach are used.

Findings – Both the static and dynamic estimations indicate that energy use, gross capital formation and remittances are the main drivers of economic growth in South Asian countries. The effects of all these variables are positive and significant. The extent of the effect of energy use is much higher than that of other two variables on the economic growth. A 1 per cent increase in the growth of energy consumption can expedite the gross domestic product growth by approximately 3 per cent in South Asia. However, the key variables, such as trade, government expenditure and foreign direct investment demonstrate no significant effect.

Originality/value – The current research is original in the sense that it investigated the issue with a new data set using improved econometric techniques. Moreover, in South Asia as a whole, this kind of study is totally absent, particularly with panel data of a large number of years. Furthermore, this study has taken into account the problem of heterogeneity and the biases created by cross-section dependence, which were mostly absent in previous studies. Therefore, the findings of this research are new contributions to the existing literature.

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