IDEAS home Printed from https://ideas.repec.org/p/mie/wpaper/634.html
   My bibliography  Save this paper

Exporting under Trade Policy Uncertainty: Theory and Evidence

Author

Listed:
  • Handley, Kyle

    (University of Michigan)

Abstract

I provide novel evidence for the impact of trade policy uncertainty on exporters. In a dynamic, heterogeneous firms model, trade policy uncertainty will delay the entry of exporters into new markets and make them less responsive to applied tariff reductions. Policy instruments that reduce or eliminate uncertainty, such as binding trade policy commitments at the WTO, increase entry. The predictions are tested on disaggregated, product-level Australian imports with model-consistent measures of uncertainty. Reducing policy uncertainty generates more product entry than unilateral liberalization. The results illuminate and quantify an important new channel for trade creation.

Suggested Citation

  • Handley, Kyle, 2012. "Exporting under Trade Policy Uncertainty: Theory and Evidence," Working Papers 634, Research Seminar in International Economics, University of Michigan.
  • Handle: RePEc:mie:wpaper:634
    as

    Download full text from publisher

    File URL: http://www.fordschool.umich.edu/rsie/workingpapers/Papers626-650/r634.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Hiau LooiKee & Alessandro Nicita & Marcelo Olarreaga, 2009. "Estimating Trade Restrictiveness Indices," Economic Journal, Royal Economic Society, vol. 119(534), pages 172-199, January.
    2. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, pages 1268-1290.
    3. Timothy J. Kehoe, 2003. "An evaluation of the performance of applied general equilibrium models of the impact of NAFTA," Staff Report 320, Federal Reserve Bank of Minneapolis.
    4. Arvind Subramanian & Aaditya Mattoo, 2008. "Multilateralism Beyond Doha," Working Papers 153, Center for Global Development.
    5. Justin R. Pierce & Peter K. Schott, 2009. "Concording U.S. Harmonized System Categories Over Time," NBER Working Papers 14837, National Bureau of Economic Research, Inc.
    6. Candau, Fabien & Jean, Sebastien, 2005. "What Are EU Trade Preferences Worth for Sub-Saharan Africa and Other Developing Countries?," Working Papers 18863, TRADEAG - Agricultural Trade Agreements.
    7. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, pages 229-242.
    8. Santos Silva, J.M.C. & Tenreyro, Silvana & Wei, Kehai, 2014. "Estimating the extensive margin of trade," Journal of International Economics, Elsevier, pages 67-75.
    9. Nick Bloom & Stephen Bond & John Van Reenen, 2007. "Uncertainty and Investment Dynamics," Review of Economic Studies, Oxford University Press, vol. 74(2), pages 391-415.
    10. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, pages 1707-1721.
    11. Jonathan Eaton, Marcela Eslava, Maurice Kugler,James Tybout, 1970. "Export Dynamics in Colombia: Firm-Level Evidence," Working Papers eg0036, Wilfrid Laurier University, Department of Economics, revised 1970.
    12. Subramanian, Arvind & Wei, Shang-Jin, 2007. "The WTO promotes trade, strongly but unevenly," Journal of International Economics, Elsevier, pages 151-175.
    13. Nick Bloom, 2007. "Uncertainty and the Dynamics of R&D," American Economic Review, American Economic Association, pages 250-255.
    14. Hassett, Kevin A & Metcalf, Gilbert E, 1999. "Investment with Uncertain Tax Policy: Does Random Tax Policy Discourage Investment?," Economic Journal, Royal Economic Society, vol. 109(457), pages 372-393, July.
    15. Johnson, Simon & Kouvelis, Panos & Sinha, Vikas, 1997. "On Reform Intensity under Uncertainty," Journal of Comparative Economics, Elsevier, pages 297-321.
    16. Timothy J. Kehoe & Kim J. Ruhl, 2013. "How Important Is the New Goods Margin in International Trade?," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 358-392.
    17. Roc Armenter & Mikl?s Koren, 2014. "A Balls-and-Bins Model of Trade," American Economic Review, American Economic Association, pages 2127-2151.
    18. Nuno Limão & Giovanni Maggi, 2015. "Uncertainty and Trade Agreements," American Economic Journal: Microeconomics, American Economic Association, pages 1-42.
    19. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, pages 1695-1725.
    20. Tang, Man-Keung & Wei, Shang-Jin, 2009. "The value of making commitments externally: Evidence from WTO accessions," Journal of International Economics, Elsevier, pages 216-229.
    21. George Alessandria & Horag Choi, 2007. "Do Sunk Costs of Exporting Matter for Net Export Dynamics?," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 289-336.
    22. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, pages 98-114.
    23. Buono, Ines & Lalanne, Guy, 2012. "The effect of the Uruguay round on the intensive and extensive margins of trade," Journal of International Economics, Elsevier, vol. 86(2), pages 269-283.
    24. Patrick Messerlin, 2008. "Walking a Tightrope: World Trade in Manufacturing and the Benefits of Binding," Sciences Po publications Strengthening Transatlant, Sciences Po.
    25. Aizenman, Joshua & Marion, Nancy P, 1993. "Policy Uncertainty, Persistence and Growth," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 145-163, June.
    26. Campa, Jose Manuel, 2004. "Exchange rates and trade: How important is hysteresis in trade?," European Economic Review, Elsevier, vol. 48(3), pages 527-548, June.
    27. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "The Value of Trade Agreements in the Presence of Political Pressures," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 574-601, June.
    28. Davide Sala & Philipp J. H. Schröder & Erdal Yalcin, 2010. "Market Access Through Bound Tariffs," Scottish Journal of Political Economy, Scottish Economic Society, vol. 57(s1), pages 272-289, July.
    29. Tang, Man-Keung & Wei, Shang-Jin, 2009. "The value of making commitments externally: Evidence from WTO accessions," Journal of International Economics, Elsevier, pages 216-229.
    30. Angrist, Joshua D, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 2-16, January.
    31. Jonathan Eaton & Marcela Eslava & Maurice Kugler & James Tybout, 2007. "Export Dynamics in Colombia:Firm-Level Evidence," BORRADORES DE ECONOMIA 003957, BANCO DE LA REPÚBLICA.
    32. Beshkar, Mostafa & Bond, Eric W. & Rho, Youngwoo, 2015. "Tariff binding and overhang: Theory and evidence," Journal of International Economics, Elsevier, pages 1-13.
    33. Jeffrey A. Frankel, 1997. "Regional Trading Blocs in the World Economic System," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 72.
    34. Kyle Handley & Nuno Limão, 2013. "Policy Uncertainty, Trade and Welfare: Theory and Evidence for China and the U.S," NBER Working Papers 19376, National Bureau of Economic Research, Inc.
    35. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, pages 641-658.
    36. W. Max Corden, 1996. "Protection and Liberalisation in Australia and Abroad," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 29(2), pages 141-154.
    37. Elhanan Helpman & Marc Melitz & Yona Rubinstein, 2008. "Estimating Trade Flows: Trading Partners and Trading Volumes," The Quarterly Journal of Economics, Oxford University Press, vol. 123(2), pages 441-487.
    38. Nuno Limão & Giovanni Maggi, 2015. "Uncertainty and Trade Agreements," American Economic Journal: Microeconomics, American Economic Association, pages 1-42.
    39. Richard Baldwin & Paul Krugman, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 104(4), pages 635-654.
    40. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, pages 1707-1721.
    41. Scott L. Baier & Jeffrey H. Bergstrand & Erika Vidal, 2007. "Free Trade Agreements In the Americas: Are the Trade Effects Larger than Anticipated?," The World Economy, Wiley Blackwell, vol. 30(9), pages 1347-1377, September.
    42. Rodrik, Dani, 1991. "Policy uncertainty and private investment in developing countries," Journal of Development Economics, Elsevier, pages 229-242.
    43. Justin R. Pierce & Peter K. Schott, 2009. "A Concordance Between Ten-Digit U.S. Harmonized System Codes and SIC/NAICS Product Classes and Industries," NBER Working Papers 15548, National Bureau of Economic Research, Inc.
    44. Daniel Trefler, 2004. "The Long and Short of the Canada-U. S. Free Trade Agreement," American Economic Review, American Economic Association, pages 870-895.
    45. Hummels, David & Ishii, Jun & Yi, Kei-Mu, 2001. "The nature and growth of vertical specialization in world trade," Journal of International Economics, Elsevier, pages 75-96.
    46. Richard Pomfret & Uwe Kaufmann & Christopher Findlay, 2010. "Are Preferential Tariffs Utilized? Evidence from Australian Imports, 2000-9," School of Economics Working Papers 2010-13, University of Adelaide, School of Economics.
    47. Francois, Joseph F. & Martin, Will, 2004. "Commercial policy variability, bindings, and market access," European Economic Review, Elsevier, pages 665-679.
    48. Mohamed Hedi Bchir & Sébastien Jean & David Laborde, 2006. "Binding Overhang and Tariff-Cutting Formulas," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 207-232.
    49. Kyle Handley & Nuno Limão, 2015. "Trade and Investment under Policy Uncertainty: Theory and Firm Evidence," American Economic Journal: Economic Policy, American Economic Association, pages 189-222.
    50. Mohamed Hedi Bchir & Sébastien Jean & David Laborde, 2006. "Binding Overhang and Tariff-Cutting Formulas," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), pages 207-232.
    51. repec:spo:wpecon:info:hdl:2441/8241 is not listed on IDEAS
    52. Dixit, Avinash K, 1989. "Entry and Exit Decisions under Uncertainty," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 620-638, June.
    53. Roberts, Mark J & Tybout, James R, 1997. "The Decision to Export in Colombia: An Empirical Model of Entry with Sunk Costs," American Economic Review, American Economic Association, pages 545-564.
    54. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2007. "Market Entry Costs, Producer Heterogeneity, and Export Dynamics," Econometrica, Econometric Society, vol. 75(3), pages 837-873, May.
    55. Daniel Trefler, 2004. "The Long and Short of the Canada-U. S. Free Trade Agreement," American Economic Review, American Economic Association, pages 870-895.
    56. Magee Christopher S, 2003. "Endogenous Preferential Trade Agreements: An Empirical Analysis," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 1-19.
    57. Commission, Productivity, 2010. "Bilateral and Regional Trade Agreements," Research Reports, Productivity Commission, Government of Australia, number 43.
    58. Manuel Amador & Kyle Bagwell, 2013. "The Theory of Optimal Delegation With an Application to Tariff Caps," Econometrica, Econometric Society, vol. 81(4), pages 1541-1599, July.
    59. Debaere, Peter & Mostashari, Shalah, 2010. "Do tariffs matter for the extensive margin of international trade? An empirical analysis," Journal of International Economics, Elsevier, pages 163-169.
    60. William Greene, 2004. "Convenient estimators for the panel probit model: Further results," Empirical Economics, Springer, pages 21-47.
    61. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, pages 72-95.
    62. Douglas C. Lippoldt, 2006. "The Australian Preferential Tariff Regime," OECD Trade Policy Papers 33, OECD Publishing.
    63. Ben S. Bernanke, 1983. "Irreversibility, Uncertainty, and Cyclical Investment," The Quarterly Journal of Economics, Oxford University Press, vol. 98(1), pages 85-106.
    64. Angrist, Joshua D, 2001. "Estimations of Limited Dependent Variable Models with Dummy Endogenous Regressors: Simple Strategies for Empirical Practice: Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 19(1), pages 27-28, January.
    65. West, Kenneth D. & Edison, Hali J. & Cho, Dongchul, 1993. "A utility-based comparison of some models of exchange rate volatility," Journal of International Economics, Elsevier, vol. 35(1-2), pages 23-45, August.
    66. Douglas A. Irwin, 1993. "The GATT's contribution to economic recovery in post-war Western Europe," International Finance Discussion Papers 442, Board of Governors of the Federal Reserve System (U.S.).
    67. Peter Lloyd, 2008. "100 Years Of Tariff Protection In Australia," Australian Economic History Review, Economic History Society of Australia and New Zealand, vol. 48(2), pages 99-145, July.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    policy uncertainty; trade; World Trade Organization; bindings;

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • F1 - International Economics - - Trade
    • F5 - International Economics - - International Relations, National Security, and International Political Economy

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mie:wpaper:634. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (FSPP Webmaster). General contact details of provider: http://edirc.repec.org/data/riumius.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.