Whose policy uncertainty affects commodity trade between Australia and the United States?

Mohsen Bahmani‐Oskooee, Ridha Nouira and Sami Saafi

Australian Economic Papers, 2023, vol. 62, issue 1, 101-123

Abstract: Recent studies are assessing the impact of news‐based policy uncertainty measure on trade flows between countries. In this paper we add to this new literature by investigating the symmetric and asymmetric effects of Australian policy uncertainty index and the U.S. index on trade flows of 63 two‐digit industries that trade between the two countries. When we estimated a symmetric and linear model for each industry, we found short‐run effects of both uncertainty measures on 30% of the industries' trade flows. However, this number increased to 70% when an asymmetric and nonlinear model was estimated. The long‐run effects of both policy uncertainty followed similar pattern. Less than 10% of trade was affected by the estimates of the linear models. However, estimates of the nonlinear models predicted that 41.20% (26.53%) of the U.S. exports to Australia was affected by the U.S. uncertainty (Australian uncertainty). As for the Australian exports to the United States, 6.72% (5.5%) of its exports were affected by the changes in the U.S. policy uncertainty (Australian uncertainty). In almost all industries, increased uncertainty was found to hurt the trade and decreased uncertainty was found to boost it at different rate or asymmetrically. In sum, the U.S. and Australian policy uncertainty measure affects U.S. exports to Australia much more than they affect Australian exports to the United States.

Date: 2023
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https://doi.org/10.1111/1467-8454.12276

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