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Economic policy uncertainty, contracting frictions and imports sourcing decisions

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  • Li, Jie

Abstract

This paper studies whether economic policy uncertainty could interact with contracting frictions to jointly affect importers’ choice to source from integrated parties or external parties. Using Related Party Trade dataset for the US, Economic Policy Uncertainty dataset by Baker et al. (2016) and contract intensity constructed by Nunn (2007), we find that US importers in high contract intensity industries would respond to increased economic policy uncertainty by increasing intra-firm trade share. Particularly, the intra-firm imports share would increase by 4.87% compared to the mean when the EPU and the contract intensity both rise from 10th to 90th percentile. In addition, we find that this effect is more pronounced for developing countries.

Suggested Citation

  • Li, Jie, 2021. "Economic policy uncertainty, contracting frictions and imports sourcing decisions," Economics Letters, Elsevier, vol. 200(C).
    • Handle: RePEc:eee:ecolet:v:200:y:2021:i:c:s0165176521000495
    DOI: 10.1016/j.econlet.2021.109772
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    References listed on IDEAS

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    Cited by:

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    2. Kai‐Hua Wang & Zu‐Shan Wang & Hong‐Wen Liu & Xin Li, 2023. "Economic policy uncertainty and geopolitical risk: evidence from China and Southeast Asia," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 37(2), pages 96-118, November.

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    More about this item

    Keywords

    Economic policy uncertainty; Contract intensity; Input sourcing; Intra-firm trade;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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