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

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Listed:
  • Cristina Constantinescu

    (World Bank)

  • Aaditya Mattoo

    (World Bank)

  • Michele Ruta

    (World Bank)

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% increase in uncertainty is associated with a 0.02% point reduction in the growth of goods and services trade—which implies that the increase in policy uncertainty since mid-2018 may have caused a 1% point decline in world trade growth. The paper also finds that the impact of policy uncertainty on trade that is 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.

Suggested Citation

  • Cristina Constantinescu & Aaditya Mattoo & Michele Ruta, 2020. "Policy Uncertainty, Trade and Global Value Chains: Some Facts, Many Questions," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 57(2), pages 285-308, September.
    • Handle: RePEc:kap:revind:v:57:y:2020:i:2:d:10.1007_s11151-020-09772-0
    DOI: 10.1007/s11151-020-09772-0
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    1. Cristina Constantinescu & Aaditya Mattoo & Michele Ruta, 2020. "The Global Trade Slowdown: Cyclical or Structural?," The World Bank Economic Review, World Bank, vol. 34(1), pages 121-142.
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    9. Timmer, Marcel P. & Los, Bart & Stehrer, Robert & de Vries, Gaaitzen J., 2016. "An Anatomy of the Global Trade Slowdown based on the WIOD 2016 Release," GGDC Research Memorandum GD-162, Groningen Growth and Development Centre, University of Groningen.
    10. Mr. Christian H Ebeke & Jesse Siminitz, 2018. "Trade Uncertainty and Investment in the Euro Area," IMF Working Papers 2018/281, International Monetary Fund.
    11. David Haugh & Alexandre Kopoin & Elena Rusticelli & David Turner & Richard Dutu, 2016. "Cardiac Arrest or Dizzy Spell: Why is World Trade So Weak and What can Policy Do About It?," OECD Economic Policy Papers 18, OECD Publishing.
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    Cited by:

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    2. Efrem Castelnuovo, 2022. "Uncertainty Before and During COVID-19: A Survey," "Marco Fanno" Working Papers 0279, Dipartimento di Scienze Economiche "Marco Fanno".
    3. Christopher Findlay & Bernard Hoekman, 2021. "Value chain approaches to reducing policy spillovers on international business," Journal of International Business Policy, Palgrave Macmillan, vol. 4(3), pages 390-409, September.
    4. Yang, Zhihao & Hong, Junjie, 2021. "Trade policy uncertainty and energy intensity: Evidence from Chinese industrial firms," Energy Economics, Elsevier, vol. 103(C).
    5. Knobel, A. & Pyzhikov, N. & Aliev, T., 2020. "Trends in the development of world trade in recent decades and current challenges for its development," Journal of the New Economic Association, New Economic Association, vol. 45(1), pages 174-182.
    6. Rodrigo Fagundes Cezar, 2022. "The Intricacies of Firms’ Support for Labor Provisions in US Trade Agreements," Global Policy, London School of Economics and Political Science, vol. 13(4), pages 483-494, September.
    7. Glazatova, M. & Daniltsev, A., 2020. "Main trends in the development of world trade and structural features of Russian exports," Journal of the New Economic Association, New Economic Association, vol. 45(1), pages 183-192.
    8. Zhaohua Zhang & Roshini Brizmohun & Gang Li & Ping Wang, 2022. "Does economic policy uncertainty undermine stability of agricultural imports? Evidence from China," PLOS ONE, Public Library of Science, vol. 17(3), pages 1-17, March.
    9. Patrizia Casadei & Simona Iammarino, 2021. "Trade policy shocks in the UK textile and apparel value chain: Firm perceptions of Brexit uncertainty," Journal of International Business Policy, Palgrave Macmillan, vol. 4(2), pages 262-285, June.
    10. 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).
    11. 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.

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    More about this item

    Keywords

    Economic policy uncertainty; Trade growth; Global value chains;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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