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Trading with Friends in Uncertain Times

Author

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  • Adam Jakubik
  • Michele Ruta

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.

Suggested Citation

  • Adam Jakubik & Michele Ruta, 2023. "Trading with Friends in Uncertain Times," IMF Working Papers 2023/124, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2023/124
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    Cited by:

    1. Ando,Mitsuyo & Hayakawa,Kazunobu & Kimura,Fukunari & Mukunoki,Hiroshi, 2025. "Friend- and Near-Shoring in Factories America, Asia, and Europe amid Rising Geopolitical Tensions," IDE Discussion Papers 973, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    2. Kerola, Eeva & McCully, Tuuli & Nuutilainen, Riikka, 2024. "Trade with Chinese characteristics - economics versus politics," BOFIT Discussion Papers 8/2024, Bank of Finland Institute for Emerging Economies (BOFIT).
    3. Florencia Airaudo & Francois de Soyres & Keith Richards & Ana Maria Santacreu, 2025. "Measuring Geopolitical Fragmentation: Implications for Trade, Financial Flows, and Economic Policy," Review, Federal Reserve Bank of St. Louis, vol. 107(12), pages 1-30, September.
    4. Han Qiu & Dora Xia & James Yetman, 2025. "The role of geopolitics in international trade," BIS Working Papers 1249, Bank for International Settlements.
    5. Aiyar, Shekhar & Malacrino, Davide & Presbitero, Andrea F., 2024. "Investing in friends: The role of geopolitical alignment in FDI flows," European Journal of Political Economy, Elsevier, vol. 83(C).
    6. 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.
    7. Almazán-Gómez, Miguel Ángel & El Khatabi, Fatima & Llano, Carlos & Pérez, Julián, 2025. "Modelling regional exposure to new trade wars," Journal of Policy Modeling, Elsevier, vol. 47(5), pages 919-940.
    8. Han Qiu & Dora Xia & James Yetman, 2024. "Deconstructing global trade: the role of geopolitical alignment," BIS Quarterly Review, Bank for International Settlements, September.
    9. Serhan Cevik, 2025. "Long live globalization: geopolitical shocks and international trade," International Economics and Economic Policy, Springer, vol. 22(2), pages 1-20, May.
    10. HAYAKAWA,Kazunobu, 2025. "Trade Effects of US Tariffs under Trump 2.0," IDE Discussion Papers 976, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    11. Samuel Hardwick, 2025. "Trade, Political Distance and the World Trade Organization," Papers 2509.17303, arXiv.org.
    12. Chang,Kuo-I & Hayakawa,Kazunobu, 2025. "Subsidies for Reshoring: Evidence from Taiwan," IDE Discussion Papers 974, Institute of Developing Economies, Japan External Trade Organization(JETRO).
    13. Steven A. Altman & Caroline R. Bastian & Davis Fattedad, 2024. "Challenging the deglobalization narrative: Global flows have remained resilient through successive shocks," Journal of International Business Policy, Palgrave Macmillan, vol. 7(4), pages 416-439, December.
    14. Bellardini, Luca & Roggi, Oliviero & Tkach, Kateryna, 2025. "International relations as a driver of equity investments: Evidence from shareholders’ reaction to geopolitical shocks," Research in International Business and Finance, Elsevier, vol. 80(C).
    15. da Rocha, Angela & da Fonseca, Luíza Neves Marques & Kogut, Clarice Secches, 2025. "Deciphering relocation paths: A systematic literature review of near-shoring and friend-shoring," Journal of International Management, Elsevier, vol. 31(5).
    16. Yan, Xianglin & Piao, Longguo, 2025. "The effect of global geopolitical risks on trade openness," International Review of Economics & Finance, Elsevier, vol. 102(C).

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    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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