Does Trade Matter for Economic Growth? Empirical Evidence from the Scandinavian Countries

Abstract: The debate about the link between economic growth and foreign trade is still open amongst scholars. There exist four main hypotheses regarding the relation between imports, exports and economic growth. The first one states that growth can come only through increasing the volume of exports of the country, i.e. export – led – growth hypothesis. The second one (growth – led – exports hypothesis) suggests that growth is an endogenous process and only after reaching certain level of development, the country should start exporting. The last two hypotheses are the import – led – growth and the growth – led – imports hypothesis. The former states that an increase in imports, for example highly technological goods can bring economic growth through knowledge spillovers and increased productivity. The latter argues that imports increase due to achieved economic advance. This paper examines whether the economic growth in Denmark, Norway and Sweden follows any of the four hypotheses for the time between 1980 and 2007. This research shows relationship between growth and trade volumes for Sweden and Denmark and provides contradicting results for Norway.