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Trade uncertainty and macroeconomic performance: An empirical analysis based on cross-country data

Chao Wu, Ke Zhao and Jinquan Liu

Economics Letters, 2025, vol. 250, issue C

Abstract: This paper uses import and export data from the top 15 countries by global trade volume and applies the DF-SV model to systematically identify the overall uncertainty level in their trade sectors. Based on this, a two-way fixed effect model and mediation effect model are employed to empirically examine whether and how trade uncertainty affects a country's macroeconomic performance. The results show that international trade uncertainty is "event-driven" and highly sensitive to major economic and trade crises. Trade uncertainty can lead to a decline in economic output and a rise in prices through channels such as financial frictions, foreign direct investment, and cross-border capital inflows, manifesting as a negative supply-side shock. Further heterogeneity analysis indicates that economic openness, financial openness, and a flexible exchange rate regime all help mitigate the negative impact of trade uncertainty.

Keywords: Trade uncertainty; Macroeconomic performance; Cross-country experience; Mechanism testing; Heterogeneity analysis (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:250:y:2025:i:c:s0165176525001193

DOI: 10.1016/j.econlet.2025.112282

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