Causality Between Trade and Productivity in Rapidly Developing Asian Countries: A Multivariate VAR Analysis

The paper investigates the causal relationship between trade and labour productivity for 10 rapidly developing Asian countries using a Vector Error-Correction Model. In particular, exports and imports are used jointly as trade variables to examine the relationship between trade and productivity. The study found evidence of import-led rather than export-led productivity growth for some of the Asian countries. The long-run result shows that there is no effect from exports to labour productivity growth for Indonesia, Korea, Japan, and Taiwan; thus suggesting that there is no export-led productivity growth in these countries. However, we do find significant effects from imports on productivity growth, suggesting import-led productivity growth in Korea and Japan. The results also show both export and import-led productivity growth for India, Malaysia, Singapore and Thailand. Also, we found evidence of only export-led productivity growth for Hong Kong.