Policy Uncertainty, Trade, and Global Value Chains: Some Facts, Many Questions

Cristina Constantinescu, Aaditya Mattoo and Michele Ruta

No 2019/92, RSCAS Working Papers from European University Institute

Abstract: This paper attempts to quantify the impact of economic policy uncertainty on overall trade and trade linked to global value chains. Using new data on policy uncertainty for 18 countries and 24 years, it finds a statistically significant negative impact of policy uncertainty on overall trade growth. A 1 percent increase in uncertainty is associated with a 0.02 percentage point reduction in the growth of goods and services trade, implying that the increase in policy uncertainty since mid-2018 may have caused a 1 percentage point decline in world trade growth. The paper also finds that the impact of policy uncertainty on trade linked to global value chains is similar to overall trade. This is likely to be the result of two opposing forces: global value chains are more dependent on relation-specific investments that are sensitive to policy uncertainty, but these investments also make trade patterns sticky. More research and better data are needed to disentangle these different effects empirically.

Keywords: Economic Policy Uncertainty; Trade Growth; Global Value Chains. (search for similar items in EconPapers)
JEL-codes: F13 F14 (search for similar items in EconPapers)
Date: 2019-11
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Related works:
Journal Article: Policy Uncertainty, Trade and Global Value Chains: Some Facts, Many Questions (2020)
Working Paper: Policy Uncertainty, Trade, and Global Value Chains: Some Facts, Many Questions (2019)
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