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Exports, investment and policy uncertainty

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  • Andrew Greenland
  • Mihai Ion
  • John Lopresti

Abstract

Building on a literature that underscores the value of delaying investment in the face of uncertainty, we study how policy uncertainty in 18 large economies affects exports to these economies. We decompose aggregate bilateral trade flows from 1995 to 2013 into intensive and extensive margin components and employ a gravity specification to assess the impact of policy uncertainty on each margin separately. Consistent with theory, increases in policy uncertainty decrease both trade values and the extensive margin but, if anything, increase the intensive margin. In further tests, we use various proxies for sunk export costs and demonstrate that the effects of policy uncertainty are more pronounced where sunk costs are higher.

Suggested Citation

  • Andrew Greenland & Mihai Ion & John Lopresti, 2019. "Exports, investment and policy uncertainty," Canadian Journal of Economics, Canadian Economics Association, vol. 52(3), pages 1248-1288, August.
    • Handle: RePEc:cje:issued:v:52:y:2019:i:3:p:1248-1288
    DOI: 10.1111/caje.12400
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    Cited by:

    1. Choi, Sangyup & Furceri, Davide & Yoo, Seung Yong, 2024. "Heterogeneity in the effects of uncertainty shocks on labor market dynamics and extensive vs. intensive margins of adjustment," Journal of Economic Dynamics and Control, Elsevier, vol. 162(C).
    2. Atsu, Francis & Adams, Samuel, 2021. "Energy consumption, finance, and climate change: Does policy uncertainty matter?," Economic Analysis and Policy, Elsevier, vol. 70(C), pages 490-501.
    3. Christian Dreyer & Oliver Schulz, 2023. "Policy uncertainty and corporate investment: public versus private firms," Review of Managerial Science, Springer, vol. 17(5), pages 1863-1898, July.
    4. Ganwen Zheng & Songping Zhu, 2021. "Research on the Effectiveness of China’s Macro Control Policy on Output and Technological Progress under Economic Policy Uncertainty," Sustainability, MDPI, vol. 13(12), pages 1-18, June.
    5. Mohammad R. Jahan-Parvar & Yuriy Kitsul & Jamil Rahman & Beth Anne Wilson, 2024. "Foreign economic policy uncertainty and U.S. equity returns," International Finance Discussion Papers 1401, Board of Governors of the Federal Reserve System (U.S.).
    6. Gabriel Caldas Montes & Pedro Salgado, 2024. "Economic policy uncertainties and business confidence in Japan," Economics Bulletin, AccessEcon, vol. 44(1), pages 38-56.
    7. Rosenfeld, Martin T. W. & Stefansky, Andreas (ed.), 2021. ""Metropolregion Mitteldeutschland" aus raumwissenschaftlicher Sicht," Arbeitsberichte der ARL, ARL – Akademie für Raumentwicklung in der Leibniz-Gemeinschaft, volume 30, number 30.
    8. Firooz, Hamid & Leduc, Sylvain & Liu, Zheng, 2025. "Reshoring, automation, and labor markets under trade uncertainty," Journal of International Economics, Elsevier, vol. 156(C).
    9. Alejandro G Graziano & Kyle Handley & Nuno Limão, 2021. "Brexit Uncertainty and Trade Disintegration," The Economic Journal, Royal Economic Society, vol. 131(635), pages 1150-1185.
    10. Dajun Liu & Xiugang Zhu & Huiru Yu, 2024. "Economic policy uncertainty, intra-industry trade, and China’s mechanical and electrical product exports," PLOS ONE, Public Library of Science, vol. 19(1), pages 1-17, January.
    11. Jiaxuan Zhang & Hongsheng Zhang & Xuhang Shen & Bo Meng, 2024. "How Does Economic Policy Uncertainty Impact a Country's Position in Global Value Chains?," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 32(5), pages 28-52, September.
    12. Yiping Sun & Chengjun Wu & Xiaoming Zhu & Pingguan Bian, 2022. "China’s Accession to the WTO as a Shock to Residents’ Health—A Difference-in-Difference Approach," IJERPH, MDPI, vol. 19(22), pages 1-18, November.
    13. Zhang, Li & Hu, Shiwei, 2023. "Foreign uncertainty and domestic exporter dynamics," International Review of Financial Analysis, Elsevier, vol. 87(C).
    14. Bi, Sifeng & Wei, Na & Du, Anna Min & Zhou, Tiran, 2025. "Mitigating financing constraints under economic uncertainty: The role of implicit government guarantees in China," Research in International Business and Finance, Elsevier, vol. 76(C).
    15. Ammar Al-Zubairi & Aseer AL-Akheli & Barakat ELfarra, 2025. "The impact of financial development, renewable energy and political stability on carbon emissions: sustainable development prospective for arab economies," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 27(7), pages 15251-15273, July.
    16. Baley, Isaac & Veldkamp, Laura & Waugh, Michael, 2020. "Can global uncertainty promote international trade?," Journal of International Economics, Elsevier, vol. 126(C).
    17. Songping Zhu & Gaofeng Yu, 2022. "The Impact of Economic Policy Uncertainty on Industrial Output: The Regulatory Role of Technological Progress," Sustainability, MDPI, vol. 14(16), pages 1-18, August.
    18. Zhou, Fengxiu & Wen, Huwei, 2022. "Trade policy uncertainty, development strategy, and export behavior: Evidence from listed industrial companies in China," Journal of Asian Economics, Elsevier, vol. 82(C).
    19. Huizheng Liu & Jingyi Zhang & Qi Han & Wenshen Pan & Muhammad Afaq Haider Jafri, 2022. "Impact of Economic Policy Uncertainty on the Stability of Enterprises Embedded in a Global Value Chain," Advances in Management and Applied Economics, SCIENPRESS Ltd, vol. 12(2), pages 1-3.
    20. Liu Qing & Zhang Yanchao & Li Langxing & Li Shuaihang, 2021. "The Interactive Impact of Trade Policy Uncertainty and Credit Constraint Heterogeneity on Firms’ Export Margins: Theory and Empirics," Journal of Systems Science and Information, De Gruyter, vol. 9(6), pages 575-607, December.
    21. Clougherty, Joseph A. & Zhang, Nan, 2023. "Antitrust policy and inward FDI: The impact of policy risk and uncertainty on U.S. inward-FDI flows," International Business Review, Elsevier, vol. 32(4).
    22. Ruxu Zhang & Yahui Qu, 2022. "The Impact of U.S. Trade Policy Uncertainty on the Trade Margins of China’s Export to the U.S," Sustainability, MDPI, vol. 14(22), pages 1-16, November.
    23. Rosenfeld, Martin T. W., 2021. "Wie sind die mitteldeutsche Metropolregion und ihre Aktivitäten zu bewerten?," Arbeitsberichte der ARL: Aufsätze, in: Rosenfeld, Martin T. W. & Stefansky, Andreas (ed.), "Metropolregion Mitteldeutschland" aus raumwissenschaftlicher Sicht, volume 30, pages 194-206, ARL – Akademie für Raumentwicklung in der Leibniz-Gemeinschaft.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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