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Market Uncertainty and International Trade

Author

Listed:
  • Haichao Fan

    (Fudan University)

  • Guangyu Nie

    (Shanghai University of Finance and Economics)

  • Zhiwei Xu

    (Peking University)

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)

Suggested Citation

  • Haichao Fan & Guangyu Nie & Zhiwei Xu, 2023. "Market Uncertainty and International Trade," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 51, pages 450-478, December.
    • Handle: RePEc:red:issued:21-348
    DOI: 10.1016/j.red.2023.05.001
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Market Uncertainty; Trade Collapse; Financial Constraint; Extensive Margin; Intensive Margin;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F44 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Business Cycles

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