The Contribution of MSMEs in India’s Total Exports and GDP Growth: Evidence from Cointegration and Causality Tests

Over the years, the MSME sector has emerged as a crucial component of the Indian economy and now it has taken the centre stage in India’s economic development due to its significant contribution in terms of output, exports and employment. This paper investigates the causal relationship between MSME output, MSME exports, total exports and GDP of the Indian economy, using the Johansen-Juselius cointegration test and Granger causality test. The findings of the study, based on the Johansen-Juselius test indicate that there is no evidence of any robust long-run cointegrating relationship between the variables. However, Granger causality test results, obtained from the unrestricted VAR (of first differenced data) establish three cases of unidirectional Granger causality: (i) MSME export growth Granger causes India’s GDP growth; (ii) MSME export growth Granger causes India’s total export growth; and (iii) MSME production growth Granger causes MSME export growth.