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Trading with friends in uncertain times

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  • Jakubik, Adam
  • Ruta, Michele

Abstract

In this paper we seek to answer the question of how the patterns of bilateral trade are altered by rising trade policy uncertainty (TPU). Specifically, we investigate whether geopolitical alignments between country pairs determine how bilateral trade flows react during periods of greater uncertainty. Using a structural gravity framework augmented with a text-based TPU index and a geopolitical distance measure based on UN General Assembly voting records, we find a significant negative effect of the latter when TPU is elevated, indicating a shift to trading among “friends” in uncertain times.
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  • Jakubik, Adam & Ruta, Michele, 2023. "Trading with friends in uncertain times," Journal of Policy Modeling, Elsevier, vol. 45(4), pages 768-780.
    • Handle: RePEc:eee:jpolmo:v:45:y:2023:i:4:p:768-780
    DOI: 10.1016/j.jpolmod.2023.06.009
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    Cited by:

    1. Blanga-Gubbay, Michael & Rubínová, Stela, 2023. "Is the global economy fragmenting?," WTO Staff Working Papers ERSD-2023-10, World Trade Organization (WTO), Economic Research and Statistics Division.

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    More about this item

    Keywords

    Trade policy uncertainty; Geopolitical distance; Trade patterns; Textual analysis;
    All these keywords.

    JEL classification:

    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F50 - International Economics - - International Relations, National Security, and International Political Economy - - - General

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