Causality between Port Traffic Volume and Regional Economy

Causality between Port Traffic Volume and Regional Economy

Local governments with port facilities have made a great effort to attract port traffic volume in consideration that port has the close relation with their regional economy. Unfortunately, they do not have any particular interest in investigating how much correlation there is between port traffic volume and regional economy. Port traffic volume enables accelerating growth of regional economy as expected. However, there is a possibility that port traffic volume may not be conducive to growth of regional economy contrary to expectation. Rather, regional economy may have influence on port traffic volume. In addition, the two variables are likely to have mutual influence on each other or no causality between them. They are also likely to have a significantly different level of influence on each other. There is a limit to examine such causality with use of Granger causality test that is frequently conducted in many researches. For this reason, vector autoregression (VAR) models such as forecast error variance decomposition, historical decomposition and impulse response are used to analyze direction and degree of causality between port traffic volume and regional economy. This paper demonstrates that port traffic volume accelerates growth of regional economy in Busan, Incheon and Gangwon, whereas it is not almost conducive to growth of regional economy in Gyeonggi, Gyeongnam and Gyeongbuk. In this paper, impulse response function is used to show that impulse of increase in traffic volume induces growth of regional economy and such impulse decays at a very low speed and to demonstrate that Busan economy has a very strong response to traffic volume shock, whereas the regional economies of Gyeonggi, Cbungnam and Gyeongbuk have a relatively weak response.