Uncertainty and International Trade Networks : An Empirical Analysis of Disaggregated Goods Trade

Prior studies have shown that an increase in uncertainty tends to suppress international trade. This study examines this relationship using disaggregated trade data. To accommodate the high-dimensional dataset, we employ a factor-augmented vector autoregressive model to investigate the dynamic relationship between uncertainty and trade volumes. An empirical analysis based on sign restrictions within the proposed framework reveals that increasing uncertainty due to contractionary global demand generally reduces trade volumes. By contrast, uncertainty shocks associated with political developments, such as tariff conflicts, tend to increase trade volumes for certain categories of goods among specific substitutable countries. These findings suggest that the effects of uncertainty on international trade critically depend on the source of the shock.