Spillover effects of US economic policy uncertainty on emerging markets: Evidence from transnational supply chains

Jieying Gao, Qi Qin and Shengjie Zhou

Journal of International Financial Markets, Institutions and Money, 2025, vol. 100, issue C

Abstract: This study provides empirical evidence on the role of transnational supply chains in the cross-border transmission of US economic policy uncertainty (EPU) to emerging markets. Using data from 22 emerging economies between 2003 and 2022, we find that US EPU significantly increases the risk for firms connected to US supply chains, compared to those operating solely in local markets. The key mechanisms driving this risk transmission are the capital chain (measured by trade credit) and the product chain (reflected in inventory turnover). Cross-sectional analyses show that firms in politically sensitive industries, with constrained financing, and those with higher participation in transnational supply chains experience a more pronounced impact from US EPU. We also observe adverse effects on other aspects of firm performance, including operating income and return on assets. Together these findings highlight the need for emerging markets to actively manage spillover risks arising from US EPU.

Keywords: Economic policy uncertainty; Transnational supply chain; Firm risk; Cross-border spillover effect; Trade credit (search for similar items in EconPapers)
JEL-codes: F21 F23 G38 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:100:y:2025:i:c:s1042443125000265

DOI: 10.1016/j.intfin.2025.102136

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