Policy Uncertainty, Trade, and Global Value Chains: Some Facts, Many Questions

Abstract

This paper attempts to quantify the impact of economic policy uncertainty on overall trade and trade linked to global value chains. Using new data on policy uncertainty for 18 countries and 24 years, it finds a statistically significant negative impact of policy uncertainty on overall trade growth. A 1 percent increase in uncertainty is associated with a 0.02 percentage point reduction in the growth of goods and services trade, implying that the increase in policy uncertainty since mid-2018 may have caused a 1 percentage point decline in world trade growth. The paper also finds that the impact of policy uncertainty on trade linked to global value chains is similar to overall trade. This is likely to be the result of two opposing forces: global value chains are more dependent on relation-specific investments that are sensitive to policy uncertainty, but these investments also make trade patterns sticky. More research and better data are needed to disentangle these different effects empirically.

Uncertainty before and during COVID‐19: A survey

“…Constantinescu et al. ( 2019 ) point out that the reason for this different evidence may rely on the way trade uncertainty is constructed. First, the measure constructed by Ahir et al.…”

Impacts of digital business on global value chain participation in European countries

“…In other words, conducting digital business activities in countries with high global uncertainty can mitigate the adverse impacts of global uncertainty on the GVC values of such countries. A contribution to existing knowledge has been made by this finding regarding uncertainty and GVC values (Constantinescu et al 2019 ; Ferreira et al 2021 ; Tam 2018 ; Verbeke 2020 ). Constantinescu et al ( 2019 ) also demonstrate that uncertainty adversely affects the overall trade growth.…”

“…A contribution to existing knowledge has been made by this finding regarding uncertainty and GVC values (Constantinescu et al 2019 ; Ferreira et al 2021 ; Tam 2018 ; Verbeke 2020 ). Constantinescu et al ( 2019 ) also demonstrate that uncertainty adversely affects the overall trade growth. These effects become more significant on the GVC value due to two opposing forces, of which the GVC values are more dependent on relation-specific investments that are sensitive to uncertainty, but trade patterns are stickier due to these investments.…”

Impact of Policy Uncertainty on Trade and Welfare Evidence From Pakistan and China

“…Coeli (2018) examined the impact of trade policy uncertainty on innovation evidence from China by using the secondary data, the estimated results of this study shows a significant effect both statistically and economically by eliminating the related trade policy uncertainty and increasing tariff on the investment of new technologies and on innovation by Chinese firms because due to policy uncertainty investors prefer to wait and delay their investment even the effective tariffs are low. Constantinescu, Mattoo and Ruta (2019) study the impact of trade policy uncertainty on the trade and trade related linked to the global chains. It is Impact Of Policy Uncertainty on Trade and Welfare: Evidence from Pakistan and China _______________________________________________________________________ concluded that trade policy uncertainty adversely affected trade growth, the statistically estimation show that trade volume of goods and services decrease to 0.02 percent by 1 percent increase in trade policy uncertainty , the estimation result also show that in mid-2018 increase in trade policy uncertainty may cause to decrease 1% the world trade growth.…”