The effects of uncertainty dynamics on exports, imports and productivity growth

This paper investigates the trade-productivity growth relationship by incorporating uncertainty/volatility in a VECM-GARCH model. Using Singapore as a case study, we find evidence supporting the crucial role of imports as a beneficial conduit for growth in both total factor productivity (TFP) and labour productivity even after controlling for economic uncertainty in the model. Differences in the causality test results for TFP, labour productivity and trade growth between models with and without uncertainty show the importance of incorporating uncertainty in drawing robust inferences about their causal relationships. The findings that volatility in productivity growth impedes import growth while volatility in export and import growth has varied impacts on productivity growth carry important implications for trade and productivity growth policies not considered before.