A dynamic analysis of the impact of uncertainty on import- and/or export-led growth: The experience of Japan and the Asian Tigers

Increasing integration of the Asian Tigers with the world economy through trade has exposed their income and trade to greater uncertainty and volatility. This paper models uncertainty in trade and income and re-examines the stability of the trade-growth nexus for Japan and the Asian Tigers in a dynamic framework. We find that in a volatile environment Japan's GDP growth is only import-led while Hong Kong's GDP growth is both export and import growth-led. On the other hand, incorporating uncertainty breaks the causal link between Korea's GDP growth and trade but it does not affect Taiwan's mutually causative relationship between GDP growth, with exports and imports. Lastly, the varied qualitative and quantitative impact of volatility in imports and exports on income growth among the Asian Tigers provides further thought for policy making.