Trade and Investment under Policy Uncertainty: Theory and Firm Evidence

Kyle Handley and Nuno Limão

Chapter 4 in Policy Externalities and International Trade Agreements, 2018, pp 89-122 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In a dynamic model with sunk export costs, a firm’s export investment is lower under trade policy uncertainty, and credible preferential trade agreements (PTAs) increase trade even if current tariffs are low. Exploring Portugal’s accession to the European Community as a policy uncertainty shock we find that the trade reform accounted for a large fraction of Portuguese exporting firms’ entry and sales; the accession removed uncertainty about future EC trade policies; and this uncertainty channel accounted for a large fraction of the predicted growth. Our approach can be applied to other PTAs and sources of policy uncertainty.

Keywords: Trade; International Trade; WTO; World Trade Organization; Investment; Globalization; Externality; Policy; Cooperation (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Trade and Investment under Policy Uncertainty: Theory and Firm Evidence (2015)
Working Paper: Trade and Investment under Policy Uncertainty: Theory and Firm Evidence (2012)
Working Paper: Trade and Investment under Policy Uncertainty: Theory and Firm Evidence (2012)
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