The direct and indirect effects of trade policy uncertainty on the volatility of world agricultural prices

Yan Cai, Yanyun Li, Faqin Lin and Wenshou Yan

Journal of Asian Economics, 2025, vol. 100, issue C

Abstract: A noteworthy characteristic of agricultural tariffs in this century is their association with an extremely high level of trade policy uncertainty (TPU). This aspect serves as an innovative avenue for investigating the volatility of world agricultural prices. The theoretical framework employs a general equilibrium model to illustrate the impact of TPU on the volatility of international agricultural prices. To address endogeneity concerns, a production shock is introduced as an instrument variable, utilizing a comprehensive panel dataset covering 18 disaggregated agricultural products across 61 countries. The empirical findings indicate that TPU exacerbates the volatility of international agricultural prices. Specifically, a 1-standard deviation increase in TPU results in a minimum 31 % increase in the volatility of international agricultural prices. Heterogeneous analysis reveals that this effect is more pronounced for developed countries and is particularly significant during periods of upward spikes in world prices. The mechanism involves TPU affecting world price volatility by motivating exporters to set higher prices (direct effect). In addition, TPU triggers further adjustments in agricultural tariffs, thereby amplifying the volatility of international agricultural price (indirect effect). Intriguingly, the findings indicate that the indirect effect contributes to more than half (70.28 %) of the total effect.

Keywords: Trade policy uncertainty; International agricultural price volatility; Government behavior; Causal mediation analysis (search for similar items in EconPapers)
JEL-codes: E30 F14 Q11 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:asieco:v:100:y:2025:i:c:s1049007825001381

DOI: 10.1016/j.asieco.2025.102014

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