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Economic policy uncertainty spillovers in small open economies: The case of Hong Kong

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  • Paul Luk
  • Michael Cheng
  • Philip Ng
  • Ken Wong

Abstract

This paper studies the extent to which economic policy uncertainty shocks in major economies affect real economic activity in small open economies. We use Hong Kong as a case study. Following Baker, Bloom and Davis (2016), we construct a newspaper‐based economic policy uncertainty index for Hong Kong for the period 1998 to 2016. We estimate international spillovers of uncertainty and find large spillovers of uncertainty from major economies to Hong Kong. Furthermore, using a structural vector autoregressive approach, we show that a rise in domestic economic policy uncertainty leads to tight financial conditions, and lower investment and vacancy posting, dampening domestic output growth.

Suggested Citation

  • Paul Luk & Michael Cheng & Philip Ng & Ken Wong, 2020. "Economic policy uncertainty spillovers in small open economies: The case of Hong Kong," Pacific Economic Review, Wiley Blackwell, vol. 25(1), pages 21-46, February.
    • Handle: RePEc:bla:pacecr:v:25:y:2020:i:1:p:21-46
    DOI: 10.1111/1468-0106.12283
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    Cited by:

    1. Huang, Yun & Luk, Paul, 2020. "Measuring economic policy uncertainty in China," China Economic Review, Elsevier, vol. 59(C).
    2. Jonathan Rice, 2020. "Policy Uncertainty Shocks and Small Open Economies in Monetary Union: a Case Study of Ireland," Trinity Economics Papers tep1020, Trinity College Dublin, Department of Economics.
    3. Lei, Adrian C.H. & Song, Chen, 2022. "Economic policy uncertainty and stock market activity: Evidence from China," Global Finance Journal, Elsevier, vol. 52(C).
    4. Cui Jinxin & Zou Huiwen, 2020. "Connectedness Among Economic Policy Uncertainties: Evidence from the Time and Frequency Domain Perspectives," Journal of Systems Science and Information, De Gruyter, vol. 8(5), pages 401-433, October.
    5. Balcilar, Mehmet & Ozdemir, Zeynel Abidin & Ozdemir, Huseyin & Wohar, Mark E., 2020. "Transmission of US and EU Economic Policy Uncertainty Shock to Asian Economies in Bad and Good Times," IZA Discussion Papers 13274, Institute of Labor Economics (IZA).
    6. Abakah, Emmanuel Joel Aikins & Caporale, Guglielmo Maria & Gil-Alana, Luis Alberiko, 2021. "Economic policy uncertainty: Persistence and cross-country linkages," Research in International Business and Finance, Elsevier, vol. 58(C).
    7. Stilianos Fountas & Panagiota Karatasi & Paraskevi Tzika, 2018. "Economic Policy Uncertainty in Greece: Measuring Uncertainty for the Greek Macroeconomy," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 16(1), pages 80-92.
    8. Niels Gillmann & Ostap Okhrin, 2023. "Adaptive local VAR for dynamic economic policy uncertainty spillover," Papers 2302.02808, arXiv.org.
    9. Ömer YALÇINKAYA & Muhammet DAŞTAN, 2020. "Effects of Global Economic, Political and Geopolitical Uncertainties on the Turkish Economy: A SVAR Analysis," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(1), pages 97-116, March.
    10. MAWUSI, Charles, 2020. "Economic Uncertainty and Remittances Flow: Heterogeneity Matters," MPRA Paper 103097, University Library of Munich, Germany.
    11. Wenjun Zhou & Xiaorong Huang & Hao Dai & Yuanmeng Xi & Zhansheng Wang & Long Chen, 2022. "Research on the Impact of Economic Policy Uncertainty on Enterprises’ Green Innovation—Based on the Perspective of Corporate Investment and Financing Decisions," Sustainability, MDPI, vol. 14(5), pages 1-24, February.
    12. Tao, Hung-Lin & Cheng, Hui-Pei, 2023. "Economic policy uncertainty and subjective health: A gender perspective," Social Science & Medicine, Elsevier, vol. 334(C).
    13. Charles Mawusi & Mohamed Abdallah & Mazhar Mughal, 2022. "Does Economic Uncertainty Foster Migrant Remittances? A Macro-Perspective from 53 Developing Countries," Working Papers hal-03725386, HAL.
    14. Charles Mawusi, 2021. "Economic Uncertainty and Remittances to Developing Economies: A System GMM Approach," Working Papers hal-03147813, HAL.
    15. Boulton, Thomas J., 2022. "Economic policy uncertainty and international IPO underpricing," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 81(C).
    16. Tang, Wenjin & Ding, Saijie & Chen, Hao, 2021. "Economic uncertainty and its spillover networks: Evidence from the Asia-Pacific countries," Pacific-Basin Finance Journal, Elsevier, vol. 67(C).
    17. Zhang, Li & Hu, Shiwei, 2023. "Foreign uncertainty and domestic exporter dynamics," International Review of Financial Analysis, Elsevier, vol. 87(C).
    18. Aviral Kumar Tiwari & Micheal Kofi Boachie & Rangan Gupta, 2021. "Network Analysis of Economic and Financial Uncertainties in Advanced Economies: Evidence from Graph-Theory," Advances in Decision Sciences, Asia University, Taiwan, vol. 25(1), pages 188-215, March.
    19. Huabin Bian & Renhai Hua & Qingfu Liu & Ping Zhang, 2022. "Petroleum market volatility tracker in China," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(11), pages 2022-2040, November.
    20. Ifedolapo Olabisi Olanipekun & Hasan Güngör & Godwin Olasehinde-Williams, 2019. "Unraveling the Causal Relationship Between Economic Policy Uncertainty and Exchange Market Pressure in BRIC Countries: Evidence From Bootstrap Panel Granger Causality," SAGE Open, , vol. 9(2), pages 21582440198, June.
    21. Hong, T., 2021. "Revisiting the Trade Policy Uncertainty Index," Cambridge Working Papers in Economics 2174, Faculty of Economics, University of Cambridge.
    22. Ömer YALÇINKAYA & Ali Kemal ÇELİK, 2021. "The Impact of Global Uncertainties on Economic Growth: Evidence from the US Economy (1996: Q1-2018: Q4)," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 35-54, June.
    23. Aviral Kumar Tiwari & Micheal Kofi Boachie & Rangan Gupta, 2021. "Network Analysis of Economic and Financial Uncertainties in Advanced Economies: Evidence from Graph-Theory," Advances in Decision Sciences, Asia University, Taiwan, vol. 25(1), pages 188-215, March.
    24. Tosapol Apaitan & Pongsak Luangaram & Pym Manopimoke, 2020. "Uncertainty and Economic Activity: Does it Matter for Thailand?," PIER Discussion Papers 130, Puey Ungphakorn Institute for Economic Research.

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