Market Uncertainty and International Trade

Haichao Fan, Guangyu Nie and Zhiwei Xu (xuzhiwei09@gmail.com)

Review of Economic Dynamics, 2023, vol. 51, 450-478

Abstract: We study the consequences of market uncertainty on international trade. An increase in foreign market uncertainty dampens China's aggregate exports on both the extensive and intensive margins. The adverse effects are more pronounced in industries facing tighter financial constraints than in others. We propose a dynamic trade model to explain the facts. Greater uncertainty depresses a firm's expected value of exporting and borrowing capacity, leading to fewer exporters and smaller average size of exports. Under calibrated parameters, the uncertainty shock accounts for a sizable fraction of China's trade collapse in the 2008 financial crisis. (Copyright: Elsevier)

Keywords: Market Uncertainty; Trade Collapse; Financial Constraint; Extensive Margin; Intensive Margin (search for similar items in EconPapers)
JEL-codes: F10 F41 F44 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.red.2023.05.001

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