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Policy Uncertainty, Trade and Welfare: Theory and Evidence for China and the U.S

Kyle Handley and Nuno Limao
Additional contact information
Nuno Limao: University of Marylan and NBER

No 650, Working Papers from Research Seminar in International Economics, University of Michigan

Abstract: We examine the impact of policy uncertainty on trade, prices and real income through firm entry investments in general equilibrium. We estimate and quantify the impact of trade policy on China's export boom to the U.S. following its 2001 WTO accession. We find the accession reduced the U.S. threat of a trade war, which can account for over 1/3 of that export growth in 2000-2005. Reduced policy uncertainty lowered U.S. prices and increased its consumers' income by the equivalent of a 13 percentage point permanent tariff decrease. These findings provide evidence of large effects of policy uncertainty on economic activity and the importance of agreements for reducing it.

Keywords: China; World Trade Organization; Policy Uncertainty; Welfare (search for similar items in EconPapers)
JEL-codes: F12 F13 F14 G31 D8 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec, nep-cna, nep-int and nep-pr~
Date: 2016-03
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http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r650.pdf

Related works:
Working Paper: Policy Uncertainty, Trade and Welfare: Theory and Evidence for China and the U.S (2013) Downloads
Working Paper: Policy Uncertainty, Trade and Welfare: Theory and Evidence for China and the U.S (2013) Downloads
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