Exports, Investment and Policy Uncertainty

48 Pages Posted: 3 Sep 2016 Last revised: 23 Sep 2016

See all articles by Andrew Greenland

Andrew Greenland

Elon University - Department of Economics

Mihai Ion

University of Arizona - Department of Finance

John Lopresti

College of William and Mary - Department of Economics

Date Written: September 1, 2016

Abstract

Building on a literature that underscores the value of delaying investment in the face of uncertainty, we study how policy uncertainty in fifteen large economies affects trade flows into these countries. We show that high levels of uncertainty in destination markets are associated with significantly lower exports to those markets. Furthermore, consistent with a model in which firms face irreversible costs to export, we show that this effect is entirely driven by a reduction in the entry of new products. Finally, we find that the effect of uncertainty on trade flows is significantly stronger when trade costs are less reversible.

Keywords: Policy Uncertainty, International Trade, Extensive Margin, Intensive Margin, Investment Irreversibility

JEL Classification: D81, G18, F14

Suggested Citation

Greenland, Andrew and Ion, Mihai and Lopresti, John, Exports, Investment and Policy Uncertainty (September 1, 2016). Available at SSRN: https://ssrn.com/abstract=2833536 or http://dx.doi.org/10.2139/ssrn.2833536

Andrew Greenland

Elon University - Department of Economics ( email )

Elon, NC 27244
United States

Mihai Ion (Contact Author)

University of Arizona - Department of Finance ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
5206210737 (Phone)

John Lopresti

College of William and Mary - Department of Economics ( email )

100 Ukrop Way
Morton Hall
Williamsburg, VA 23185
United States

HOME PAGE: http://wmpeople.wm.edu/site/page/jwlopresti/home

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