Economic and policy uncertainty: Aggregate export dynamics and the value of agreements

Jeronimo Carballo, Kyle Handley and Nuno Limão

Journal of International Economics, 2022, vol. 139, issue C

Abstract: We examine the interaction of economic and policy uncertainty in a dynamic, heterogeneous firms model. Uncertainty about foreign income, trade protection, and their interaction dampens export investment. Trade agreements can mitigate uncertainty and the probability of policy uncertainty shocks. We use firm data from 2003–2011 to establish new facts about U.S. export dynamics. These facts include a differentially lower export growth to non-preferential markets driven by the extensive margin at the start of the Great Trade Collapse. The structural model can explain this differential as a consequence of a shock to demand uncertainty. The shock was three times larger for non-preferential markets than preferential ones and it was later reversed, which is consistent with the timing of trade war fears in the crisis.

Keywords: Uncertainty; International trade; Trade policy; Trade agreements; Investment (search for similar items in EconPapers)
JEL-codes: E02 E3 E61 F02 F1 F14 F15 F55 F6 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:139:y:2022:i:c:s0022199622000939

DOI: 10.1016/j.jinteco.2022.103661

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