The export-led growth hypothesis (ELGH) postulates that export growth is one of the key determinants of economic growth. This study goes beyond the traditional neoclassical theory of production by estimating an augmented Cobb-Douglas production function. The inclusion of exports as a third input provides an alternative procedure to capture total factor productivity (TFP) growth. The study tests the hypothesis by analysing the case of Costa Rica, using annual data for the period 1950-1997. In using several procedures to test for cointegration, it goes beyond the traditional time series studies by examining empirically the short-term as well as the long-run relationship.
The study finds that the ELGH is valid in this particular case; however, the empirical results show that physical investment and population mainly drove Costa Rica´s overall economic performance from 1950 onwards.
From a review of the literature we find that the empirical evidence regarding the relationship between exports and growth is not robust, and although the results of the study suggest that exports have a positive effect on the overall rate of economic growth and could be considered an "engine of growth" as the ELGH advocates, their impact was quantitatively relatively small, in both the short and the long-run.
The evidence presented clearly supports the neoclassical theory of production and, to a lesser extent, the so-called new-fashioned economic wisdom. Moreover, it challenges the empirical literature regarding the ELGH and expresses serious doubts with regard to promoting exports as a comprehensive development strategy. The ELGH is probably beneficial only for a limited number of developing countries, and only to a certain extent.