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Innocent bystanders: how foreign uncertainty shocks harm exporters

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  • Taglioni, Daria
  • Zavacka, Veronika

Abstract

The failure of trade economists to anticipate the extreme drop in trade post Lehman Brothers bankruptcy suggests that the behavior of trade in exceptional circumstances may still be poorly understood. This paper explores whether uncertainty shocks have explanatory power for movements in trade. VAR estimations on United States data suggest that domestic uncertainty is a strong predictor of movements in imports, but has little effect on exports. Guided by these results, the paper estimates a bilateral model with focus on the impact of importer uncertainty on foreign suppliers. It finds that there is a strong negative relationship between uncertainty and trade and that this relationship is non-linear. Uncertainty matters most when its levels are exceptionally high. The paper does not find evidence of learning from past turmoils, suggesting that prior experience with major uncertainty shocks does not reduce the effect on trade. In line with the expectations, the negative effect of uncertainty shocks on trade is higher for trade relationships more intensive in durable goods. Surprisingly, however, the effect of durability is non-linear. Supply chain considerations or the possibility that the relationships with the highest durability lead to important compositional effects may have a bearing on the results. The results are robust to excluding the post Lehman shock, suggesting that the trade response during the 2008-2009 crisis has been similar to past uncertainty events. JEL Classification: F02, F10, G01

Suggested Citation

  • Taglioni, Daria & Zavacka, Veronika, 2013. "Innocent bystanders: how foreign uncertainty shocks harm exporters," Working Paper Series 1530, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20131530
    Note: 337831
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    Cited by:

    1. Ferrantino, Michael J. & Taglioni, Daria, 2014. "Global Value Chains in the Current Trade Slowdown," World Bank - Economic Premise, The World Bank, issue 138, pages 1-6, March.
    2. 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.
    3. Bai, Xiwen, 2021. "Tanker freight rates and economic policy uncertainty: A wavelet-based copula approach," Energy, Elsevier, vol. 235(C).
    4. Dennis Novy & Alan M. Taylor, 2020. "Trade and Uncertainty," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 749-765, October.
    5. Anna Matzner & Birgit Meyer & Harald Oberhofer, 2023. "Trade in times of uncertainty," The World Economy, Wiley Blackwell, vol. 46(9), pages 2564-2597, September.
    6. Chowla, Shiv & Quaglietti, Lucia & Rachel, Lukasz, 2014. "How have world shocks affected the UK economy?," Bank of England Quarterly Bulletin, Bank of England, vol. 54(2), pages 167-179.
    7. Fei Jia & Xiaoyong Huang & Xiangyun Xu & Haoyu Sun, 2020. "The Effects of Economic Policy Uncertainty on Export: A Gravity Model Approach," Prague Economic Papers, Prague University of Economics and Business, vol. 2020(5), pages 600-622.
    8. Yu, Mingzhe & Fan, Jiachuan & Wang, Haijun & Wang, Jie, 2023. "US trade policy uncertainty on Chinese agricultural imports and exports: An aggregate and product-level analysis," International Review of Economics & Finance, Elsevier, vol. 84(C), pages 70-83.
    9. Jannsen, Nils & Potjagailo, Galina, 2016. "Die Wirkung von Unsicherheit in den Abnehmerländern auf die deutschen Ausfuhren," Kiel Insight 2016.9, Kiel Institute for the World Economy (IfW Kiel).
    10. Byron Gangnes & Ari Van Assche, 2016. "Global Value Chains and Changing Trade Elasticities," Working Papers 201617, University of Hawaii at Manoa, Department of Economics.
    11. Thomas Farole, 2016. "Factory Southern Africa?," World Bank Publications - Reports 23787, The World Bank Group.
    12. Jin, Peizhen & Peng, Chong & Song, Malin, 2019. "Macroeconomic uncertainty, high-level innovation, and urban green development performance in China," China Economic Review, Elsevier, vol. 55(C), pages 1-18.
    13. Fei Jia & Xiaoyong Huang & Xiangyun Xu & Haoyu Sun, . "The Effects of Economic Policy Uncertainty on Export: A Gravity Model Approach," Prague Economic Papers, University of Economics, Prague, vol. 0.
    14. Liu, Qing & Ma, Hong, 2020. "Trade policy uncertainty and innovation: Firm level evidence from China’s WTO accession," Journal of International Economics, Elsevier, vol. 127(C).
    15. Boysen-Hogrefe, Jens & Fiedler, Salomon & Groll, Dominik & Jannsen, Nils & Kooths, Stefan & Plödt, Martin & Potjagailo, Galina, 2016. "Deutsche Konjunktur im Frühjahr 2016 - Unsicherheit lastet nur kurz auf Expansionskräften [German Economy Spring 2016 - Uncertainty weighs on growth only temporarily]," Kieler Konjunkturberichte 17, Kiel Institute for the World Economy (IfW Kiel).
    16. Andrew Greenland & Mihai Ion & John Lopresti, 2019. "Exports, investment and policy uncertainty," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 52(3), pages 1248-1288, August.
    17. 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.

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    More about this item

    Keywords

    exporters; international trade; Uncertainty Shocks;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F10 - International Economics - - Trade - - - General
    • G01 - Financial Economics - - General - - - Financial Crises

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