The effect of world policy uncertainty and geopolitical risk factors on export-led growth for Japan: novel insights by wavelet local multiple correlation methods

This study examines the relationships among exports, economic growth, the World Uncertainty Index, and the Geopolitical Risk Index for Japan within both bivariate and multivariate frameworks. We analyze quarterly data spanning from 1994Q1 to 2022Q1. This investigation contributes to the existing literature on the export-led growth hypothesis through an innovative approach. Specifically, we employ the state-of-the-art Wavelet Local Multiple Correlation (WLMC) method introduced by Polanco-Martínez et al. (Sci. Rep. 10(1): 1-11 (2020). https://doi.org/10.1038/s41598-020-77767-8 ). Unlike conventional bivariate wavelet methods, the WLMC enables us to capture correlations between two/ three/four variables simultaneously. To the best of our knowledge, this study represents the first empirical analysis that evaluates the short, medium, and long-term dynamics of export-led growth in the context of uncertainty. Our research findings reveal that, in the multivariate framework, exports emerge as the dominant variable, providing support for the export-led growth hypothesis in the Japanese context. Furthermore, in the long run, we identify adverse effects of the World Uncertainty Index on economic growth. Based on our results, this paper puts forth essential policy recommendations for the Japanese government. These recommendations aim to guide the development of countercyclical policies that can stabilize both exports and economic growth amid a backdrop of uncertainty.