According to the export-led growth hypothesis (ELGH), it is not only through increased application of labour and capital that overall growth of the national economies is possible but this can also be done through raising the levels of exports. According to the proponents of ELGH, exports can serve as an “engine of growth.” (Smith, 2001, p. 1) This theory of export-led growth has ample practical support from various countries, especially the developing countries. In recent times, trade policies of many developing nations have indeed become similar as the common believe has been that liberalization aimed at promoting exports is the panacea for all growth ills. Many unsuccessful cases of import substitution, led to trade policy shift to export promotion. The success stories of East Asian nations such as Singapore, Taiwan, Hong Kong and South Korea with respect to manufacturing exports have inspired others to emulate the policy of export promotion even for themselves. However, in recent times the strategy of export-led growth has received a severe drubbing as the Japanese and South Korean manufacturing export-led growth have cooled down. A major global recession would certainly cause difficulties for unhindered growth of these export-led nations. This crisis-driven slump in exports have in many countries has accentuated the significance of generating more domestic demand.
The theoretical link between economic growth and trade is centuries old. The earliest proponent of the positive relationship between trade and economic growth is the classical economist Adam Smith. Subsequently, other classical economists such as James Mills, John Stuart Mill, Ricardo and Torrens improved upon the theory of Smith. Since then, the positive impact of trade on the economy has been well established through indisputable benefits of international specialization and productivity gain. In this context, Ibrahim (2002)