Japan's Relative GDP and Positions in Services Trade: Co-integration and Granger causality tests based on linear VEC models

Abstract

This study explores the nexus among the Japanese trade in services to world trade and the economic development. Assuming that the relationship is linear, short-run Granger causality indicates that the export position negatively Granger causes the Japanese GDP relative to the world; the relative GDP exerts positive effects on the import position, and the export Granger causes the import position with negative effects while Granger causality runs from the later to the former with positive effects, and; the relative GDP positively Granger causes the Japanese import position. In the long-run, Wald tests show that the co-integration relationship Granger causes both the relative GDP and the import position in services, and; both export and import positions Granger cause the relative GDP, and both the relative GDP and the export position Granger cause the Japanese import position, all with positive effects. The export position in services seems to be exogenous to the model system, probably because of the policy interference of export facilitation. Keywords—Japan; Granger causality; trade in services; relative GDP; time series analysis