Growth and trade dynamics under regime shifts in Australia

Abstract

Uses parametric Granger causality techniques to test whether trade acted as an engine of growth during the period 1971(2)‐1994(2) in Australia. The causality tests were performed on time‐series data that were filtered after unit root and cointegration testing. During the study period there was a dramatic shift from a protectionist to a more liberal trading regime in Australia. Superexogeneity tests were applied to the conditional growth and the marginal trade policy models derived by the application of general to specific methodology. The superexogeneity tests examined whether the shift from a protectionist to a more liberal trading regime in the mid‐1980s undermined the structure of Australian trade growth dynamics as foreshadowed in the Lucas critique. Reviews the macropolicy implications of the trade policy regime shift.