IDEAS home Printed from https://ideas.repec.org/p/wfo/wpaper/y2023i659.html
   My bibliography  Save this paper

Trade in Times of Uncertainty

Author

Listed:
  • Anna Matzner
  • Birgit Meyer

    (WIFO)

  • Harald Oberhofer

Abstract

This paper analyses the direct and indirect trade volume and trade cost effects of uncertainty on international trade and economic welfare using a structural gravity framework for a panel of 97 developed and developing countries from 2000 to 2018. Our results suggest that an increase in unilateral uncertainty affects average trade costs in a heterogeneous manner, depending on whether the uncertainty originates from the importing or exporting country. Moreover, using a cross-sectional gravity approach, we show that an uncertainty shock directly reduces cross-border trade flows. The paper illustrates the suitability of the proposed modelling approach by means of two counterfactual scenario analyses in which we calculate the general equilibrium trade and welfare effects of uncertainty induced by the unexpected outcome of the Brexit referendum in 2016 and the outbreak of the COVID-19 pandemic in 2020.

Suggested Citation

  • Anna Matzner & Birgit Meyer & Harald Oberhofer, 2023. "Trade in Times of Uncertainty," WIFO Working Papers 659, WIFO.
    • Handle: RePEc:wfo:wpaper:y:2023:i:659
    as

    Download full text from publisher

    File URL: https://www.wifo.ac.at/wwa/pubid/70676
    File Function: abstract
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. de Sousa, José & Mayer, Thierry & Zignago, Soledad, 2012. "Market access in global and regional trade," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 1037-1052.
    2. Kyle Handley & Nuno Limão, 2018. "Policy Uncertainty, Trade, and Welfare: Theory and Evidence for China and the United States," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 5, pages 123-175, World Scientific Publishing Co. Pte. Ltd..
    3. Nuno Limão & Giovanni Maggi, 2018. "Uncertainty and Trade Agreements," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 3, pages 47-88, World Scientific Publishing Co. Pte. Ltd..
    4. Cosimo Beverelli & Alexander Keck & Mario Larch & Yoto V. Yotov, 2018. "Institutions, Trade and Development: A Quantitative Analysis," CESifo Working Paper Series 6920, CESifo.
    5. Benedikt Heid & Mario Larch & Yoto V. Yotov, 2021. "Estimating the effects of non‐discriminatory trade policies within structural gravity models," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 376-409, February.
    6. Scott R. Baker & Nicholas Bloom & Steven J. Davis & Stephen J. Terry, 2020. "COVID-Induced Economic Uncertainty," NBER Working Papers 26983, National Bureau of Economic Research, Inc.
    7. Kyle Handley & Nuno Limão, 2018. "Trade and Investment under Policy Uncertainty: Theory and Firm Evidence," World Scientific Book Chapters, in: Policy Externalities and International Trade Agreements, chapter 4, pages 89-122, World Scientific Publishing Co. Pte. Ltd..
    8. Taglioni, Daria & Zavacka, Veronika, 2012. "Innocent bystanders : how foreign uncertainty shocks harm exporters," Policy Research Working Paper Series 6226, The World Bank.
    9. Scott R. Baker & Nicholas Bloom & Steven J. Davis, 2016. "Measuring Economic Policy Uncertainty," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(4), pages 1593-1636.
    10. Andrea Carriero & Haroon Mumtaz & Konstantinos Theodoridis & Angeliki Theophilopoulou, 2015. "The Impact of Uncertainty Shocks under Measurement Error: A Proxy SVAR Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(6), pages 1223-1238, September.
    11. Harald Oberhofer & Michael Pfaffermayr & Richard Sellner, 2021. "Revisiting time as a trade barrier: Evidence from a panel structural gravity model," Review of International Economics, Wiley Blackwell, vol. 29(5), pages 1382-1417, November.
    12. Hites Ahir & Nicholas Bloom & Davide Furceri, 2022. "The world uncertainty index," CEP Discussion Papers dp1842, Centre for Economic Performance, LSE.
    13. Handley, Kyle, 2014. "Exporting under trade policy uncertainty: Theory and evidence," Journal of International Economics, Elsevier, vol. 94(1), pages 50-66.
    14. Arbatli Saxegaard, Elif C. & Davis, Steven J. & Ito, Arata & Miake, Naoko, 2022. "Policy uncertainty in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 64(C).
    15. Michele Imbruno, 2019. "Importing under trade policy uncertainty: Evidence from China," Post-Print hal-02171715, HAL.
    16. Ghirelli, Corinna & Pérez, Javier J. & Urtasun, Alberto, 2019. "A new economic policy uncertainty index for Spain," Economics Letters, Elsevier, vol. 182(C), pages 64-67.
    17. Rangan Gupta & Giray Gozgor & Huseyin Kaya & Ender Demir, 2019. "Effects of geopolitical risks on trade flows: evidence from the gravity model," Eurasian Economic Review, Springer;Eurasia Business and Economics Society, vol. 9(4), pages 515-530, December.
    18. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    19. Fei Jia & Xiaoyong Huang & Xiangyun Xu & Haoyu Sun, 2020. "The Effects of Economic Policy Uncertainty on Export: A Gravity Model Approach," Prague Economic Papers, Prague University of Economics and Business, vol. 2020(5), pages 600-622.
    20. Luisa Kinzius & Alexander Sandkamp & Erdal Yalcin, 2019. "Trade protection and the role of non-tariff barriers," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 155(4), pages 603-643, November.
    21. Imbruno, Michele, 2019. "Importing under trade policy uncertainty: Evidence from China," Journal of Comparative Economics, Elsevier, vol. 47(4), pages 806-826.
    22. Carballo, Jeronimo & Handley, Kyle & Limão, Nuno, 2022. "Economic and policy uncertainty: Aggregate export dynamics and the value of agreements," Journal of International Economics, Elsevier, vol. 139(C).
    23. Nicholas Bloom, 2009. "The Impact of Uncertainty Shocks," Econometrica, Econometric Society, vol. 77(3), pages 623-685, May.
    24. Kyle Handley & Nuno Limão, 2022. "Trade Policy Uncertainty," Annual Review of Economics, Annual Reviews, vol. 14(1), pages 363-395, August.
    25. Mario Larch & Joschka Wanner & Yoto V. Yotov & Thomas Zylkin, 2019. "Currency Unions and Trade: A PPML Re‐assessment with High‐dimensional Fixed Effects," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 81(3), pages 487-510, June.
    26. James E. Anderson & Mario Larch & Yoto V. Yotov, 2015. "Estimating General Equilibrium Trade Policy Effects: GE PPML," CESifo Working Paper Series 5592, CESifo.
    27. de Sousa, José & Mayer, Thierry & Zignago, Soledad, 2012. "Market access in global and regional trade," Regional Science and Urban Economics, Elsevier, vol. 42(6), pages 1037-1052.
    28. Dinkneh Gebre Borojo & Jiang Yushi & Miao Miao, 2022. "The Impacts of Economic Policy Uncertainty on Trade Flow," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(8), pages 2258-2272, June.
    29. Armelius, Hanna & Hull, Isaiah & Stenbacka Köhler, Hanna, 2017. "The timing of uncertainty shocks in a small open economy," Economics Letters, Elsevier, vol. 155(C), pages 31-34.
    30. Pui Sun Tam, 2018. "Global trade flows and economic policy uncertainty," Applied Economics, Taylor & Francis Journals, vol. 50(34-35), pages 3718-3734, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Yang, Zhihao & Hong, Junjie, 2021. "Trade policy uncertainty and energy intensity: Evidence from Chinese industrial firms," Energy Economics, Elsevier, vol. 103(C).
    2. Patrizia Casadei & Simona Iammarino, 2021. "Trade policy shocks in the UK textile and apparel value chain: Firm perceptions of Brexit uncertainty," Journal of International Business Policy, Palgrave Macmillan, vol. 4(2), pages 262-285, June.
    3. Andrew Greenland & Mihai Ion & John Lopresti, 2019. "Exports, investment and policy uncertainty," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(3), pages 1248-1288, August.
    4. Xinwei Zhao & Xinsong Yang & Geng Peng & Shengjie Yue, 2023. "International Trade and Carbon Emissions: Evaluating the Role of Trade Rule Uncertainty," Sustainability, MDPI, vol. 15(15), pages 1-19, July.
    5. Benedikt Heid & Mario Larch & Yoto V. Yotov, 2021. "Estimating the effects of non‐discriminatory trade policies within structural gravity models," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(1), pages 376-409, February.
    6. INADA Mitsuo & JINJI Naoto, 2020. "To What Degree does Policy Uncertainty Affect Foreign Direct Investment? Micro-evidence from Japan's International Investment Agreements," Discussion papers 20022, Research Institute of Economy, Trade and Industry (RIETI).
    7. Mulabdic, Alen & Rotunno, Lorenzo, 2022. "Trade barriers in government procurement," European Economic Review, Elsevier, vol. 148(C).
    8. Esposito, Federico, 2022. "Demand risk and diversification through international trade," Journal of International Economics, Elsevier, vol. 135(C).
    9. Gnangnon, Sèna Kimm, 2022. "Duration of WTO Membership and Investment-Oriented Remittances Flows," EconStor Preprints 251274, ZBW - Leibniz Information Centre for Economics.
    10. Dennis Novy & Alan M. Taylor, 2020. "Trade and Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 749-765, October.
    11. Nicholas Bloom & Philip Bunn & Scarlet Chen & Paul Mizen & Pawel Smietanka & Gregory Thwaites, 2019. "The Impact of Brexit on UK Firms," NBER Working Papers 26218, National Bureau of Economic Research, Inc.
    12. Crowley, Meredith & Meng, Ning & Song, Huasheng, 2018. "Tariff scares: Trade policy uncertainty and foreign market entry by Chinese firms," Journal of International Economics, Elsevier, vol. 114(C), pages 96-115.
    13. Muhammad Nadir Shabbir & Muhammad Usman Arshad & Muhammad Amir Alvi & Kainat Iftikhar, 2022. "Impact of Trade Policy Uncertainty and Sustainable Development on Medical Innovation for Developed Countries: An Application of DID Approach," Sustainability, MDPI, vol. 15(1), pages 1-26, December.
    14. Cho, Dooyeon & Kim, Husang, 2023. "Macroeconomic effects of uncertainty shocks: Evidence from Korea," Journal of Asian Economics, Elsevier, vol. 84(C).
    15. Zhou, Fengxiu & Wen, Huwei, 2022. "Trade policy uncertainty, development strategy, and export behavior: Evidence from listed industrial companies in China," Journal of Asian Economics, Elsevier, vol. 82(C).
    16. Crowley, M. A. & Exton, O. & Han, L., 2018. "Renegotiation of Trade Agreements and Firm Exporting Decisions: Evidence from the Impact of Brexit on UK Exports," Cambridge Working Papers in Economics 1839, Faculty of Economics, University of Cambridge.
    17. Céline Poilly & Fabien Tripier, 2023. "Regional Trade Policy Uncertainty," Working Papers hal-04239322, HAL.
    18. Giovanni Caggiano & Efrem Castelnuovo, 2023. "Global financial uncertainty," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 38(3), pages 432-449, April.
    19. Ruxu Zhang & Yahui Qu, 2022. "The Impact of U.S. Trade Policy Uncertainty on the Trade Margins of China’s Export to the U.S," Sustainability, MDPI, vol. 14(22), pages 1-16, November.
    20. Federico Carril-Caccia & Juliette Milgram Baleix & Jordi Paniagua, 2019. "Does Terrorism Affect Foreign Direct Investment?," Working Papers 1913, Department of Applied Economics II, Universidad de Valencia.

    More about this item

    Keywords

    International Trade; Trade Costs; Gravity; Uncertainty; Counterfactual Scenario Analysis; Brexit; COVID-19;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wfo:wpaper:y:2023:i:659. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Florian Mayr (email available below). General contact details of provider: https://edirc.repec.org/data/wifooat.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.