The Classical and Neo Classical economists believed that participation in international trade could be a strong positive force for economic development. There are some related reasons that can be analyzed to support this argument. One approach to development is to concentrate in producing export in industrial sector. Promoting exports could directly lead to economic development either through encouraging production of goods for export or allowing accumulation of foreign exchange which enables importation of capital inputs indispensable for export. Moreover, such
trade may result in facilitates more diffusion of knowledge, enhance efficiency of input. Hence, pace the progress of economic development. In any of these three cases, international trade can be described as an “engine of growth”. (See Hogendorn, 1996, Cyper & Dietz, 1997).
There are various standard methods that have been tested in detecting the relationship between trade and economic growth, and the result vary accordingly. Although there are some disagreements among economists due to the different approach, some analyses find that there is a strong positive relationship between trade and growth. This article will analyze the three arguments for that international trade as an “engine of growth” and indicate some problems with these arguments.
II. Export-led Growth


First of all, one technique to identify the important role of trade is to notice on the effectiveness of export promotion (outward-looking strategy) in fostering economic growth. In this strategy, the countries initiate adding-on the existing export structure of some standard manufactured goods exports, but without the scheme of reducing the importance of the primary product export base within the overall export structure (Cyper and Dietz, 1997). By concentrating and differentiating on producing export, the countries anticipate the main advantage of trade is not terminating in static gain but will gradually establish dynamic comparative advantages to reach the dynamic gains. The dynamic gain can stimulate innovation and exploit better economies of scale and in turn better economic growth. In short the hypothesis of export promotion states that export growth, especially manufacture export product, is indeed important prior the economic growth. .

Sinha and Sinha (1996) paid more attention to the cross section and the time series studies of trade balance, X-M, to illustrate the trade-led growth. They found a positive relationship between the growth of openness [(X-M)] / GDP] and the growth rate of selected Asian countries’ GDP for various decades of 1951-1990. It suggests that export promotion is an important contributor to economic growth. Balassa (1989) argued that the favorable effects of trade, especially export, on economic growth would be higher if such a country employs outward-looking industrialization strategy. Since such strategy would be more likely to ensure trade leading to a more efficient utilization of the productive resources. While countries with inward-oriented strategy industrialization would have limited effort to increase export growth. Since, in such economies the absorption capacity of domestic resources for producing manufactured product was highly constraint of protection.
Similarly, Asafu-Adjaye and Chakraborty (1999) found evidence which is consistent with the weak relationship between exports and real output for inward looking countries. They provided a super exogeneity test for export and found that exports were weakly exogenous implying inward-oriented strategy was ineffective development strategy when prematurely initiated. They also argued the failure to support export –led growth by the fact that the export of such country is still dominated by primary product. Thus, these findings give clear impression that export promotion is an effective development strategy as long as country can either develop static comparative advantage or move toward a more dynamic and productive economy within outward-oriented strategy.

III.
The Role of Import on
Economic Growth
The second technique to identify the positive effect of trade is to examine the effect of compression import on growth. To improve trade balance as well as to relieve the constant problem of insufficient foreign exchange reserve, many trading countries, especially developing countries, have tried to reduce imports. Such countries initiated to build new industrialization of the progressively replaced consumer good imported by domestic production known as import substitution industrialization strategy. In this respect, government must either subsidize the new import substitution industry firms to compete with foreign import at world price or compress import by imposing various import tariff and import quota (Hogendorn, 1996). This strategy might be a retard for economic growth since it causes price distortion. Lee (1995) argued that any kinds of trade distortions imposed on capital goods imports increased the price of imported capital goods and hence reduced the growth rate by forcing the economy to use domestic product more than efficient level. In addition to that, the idea to protect the firm is not likely on the right track since a number imports of intermediate and capital goods of developing countries are necessary inputs in the production of goods exports. Compressing such imports would lead to deteriorate the export performance and in turn reduce rate or economic growth.
Since importing is also important contributor to growth, more recent research takes into accounts the import growth on export promotion empirical studies. Omitting imports will outcome a false rejection of export-led growth and false detection of it. Lee (1995,) examined the role of capital goods import on economic growth and found that imported capital goods had a much higher productivity than domestically produced capital goods. One of key lessons from this investigation is that imports of foreign input are an important determinant of the link between trade and growth.
Riezman, Whiteman and Summers (1995) provided an investigation on export led growth that took account of import explicitly in the model. They found that there were some countries indicated particularly strong in explaining economic growth. The co integration test showed that there were certain long run relationships between regressors. Using the forecast error variance decomposition, they found the export-led growth would work both directly (import→export→growth) and indirectly through import (export→import→growth) in these countries. They also provided test for duration time of export-led growth. Using conditional linear feed back by frequency, they found the new evidence that in some countries export led growth was a long run phenomenon. In senses that export promotion strategies extensive today would have their strongest effect 8 to 16 years. However, in other countries, exports have their highest influence in the short-run, namely, less than 4 years.
Similarly, Asafu-Adjaye and Chakraborty (1999), also found the evidence that real output, export and imports were co integrated in inward- oriented countries. Using the error correction models, they found causality running indirectly, namely, from exports to imports and then real output. This indicates that the importation of intermediate goods and capital goods is also the key element for trade link to economic growth.
Taken together all findings, it is clear that import is an important channel to economic growth, and it suggests that by purchasing a portion of relative cheap foreign input, GDP’s trading countries can grow much faster. In addition, any import compression adopting could adversely affect the export promotion and cause insignificant economic growth.