Market Uncertainty and International Trade

49 Pages Posted: 22 Nov 2019 Last revised: 8 May 2021

See all articles by Haichao Fan

Haichao Fan

Fudan University - School of Economics

Guangyu Nie

Shanghai University of Finance and Economics

Zhiwei Xu

Peking University HSBC Business School

Date Written: September 1, 2019

Abstract

We study the consequences of market uncertainty on international trade. An increase in foreign market uncertainty dampens China's aggregate exports on both the extensive and intensive margins. The adverse effects are more pronounced in industries facing tighter financial constraints than in others. We propose a dynamic trade model to explain the facts. Greater uncertainty depresses a firm's expected value of exporting and borrowing capacity, leading to fewer exporters and a smaller average size of exports. Under calibrated parameters, the uncertainty shock accounts for a sizeable fraction of China's trade collapse in the 2008 financial crisis and the recent trade war.

Keywords: Market Uncertainty, Trade Collapse, Financial Constraint, Extensive Margin, Intensive Margin

JEL Classification: F10, F41, F44

Suggested Citation

Fan, Haichao and Nie, Guangyu and Xu, Zhiwei, Market Uncertainty and International Trade (September 1, 2019). Available at SSRN: https://ssrn.com/abstract=3485366 or http://dx.doi.org/10.2139/ssrn.3485366

Haichao Fan

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

Guangyu Nie

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, Shanghai 200433
China

HOME PAGE: http://www.nieguangyu.wixsite.com/econ

Zhiwei Xu (Contact Author)

Peking University HSBC Business School ( email )

PHBS 612, Unversity Town,
Nanshan District
Shenzhen, Guangdong
China

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