Policy Uncertainty, Trade, and Global Value Chains: Some Facts, Many Questions

25 Pages Posted: 15 Nov 2019

See all articles by Cristina Constantinescu

Cristina Constantinescu

World Bank

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Michele Ruta

Economic Research Division, WTO; Columbia Business School - Economics Department; International Monetary Fund (IMF)

Date Written: November 2019

Abstract

This paper attempts to quantify the impact of economic policy uncertainty on overall trade and trade linked to global value chains. Using new data on policy uncertainty for 18 countries and 24 years, it finds a statistically significant negative impact of policy uncertainty on overall trade growth. A 1 percent increase in uncertainty is associated with a 0.02 percentage point reduction in the growth of goods and services trade, implying that the increase in policy uncertainty since mid-2018 may have caused a 1 percentage point decline in world trade growth. The paper also finds that the impact of policy uncertainty on trade linked to global value chains is similar to overall trade. This is likely to be the result of two opposing forces: global value chains are more dependent on relation-specific investments that are sensitive to policy uncertainty, but these investments also make trade patterns sticky. More research and better data are needed to disentangle these different effects empirically.

Keywords: Economic Policy Uncertainty; Trade Growth; Global Value Chains

JEL Classification: F13; F14

Suggested Citation

Constantinescu, Cristina and Mattoo, Aaditya and Ruta, Michele, Policy Uncertainty, Trade, and Global Value Chains: Some Facts, Many Questions (November 2019). Robert Schuman Centre for Advanced Studies Research Paper No. RSCAS 2019/92, Available at SSRN: https://ssrn.com/abstract=3487486 or http://dx.doi.org/10.2139/ssrn.3487486

Cristina Constantinescu (Contact Author)

World Bank ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Aaditya Mattoo

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
Room MC 3-327
Washington, DC 20433
United States
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202-676-9810 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/amattoo

Michele Ruta

Economic Research Division, WTO ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland

HOME PAGE: http://www.iue.it/Personal/Fellows/MicheleRuta/Welcome.htm

Columbia Business School - Economics Department ( email )

420 West 118th Street
New York, NY 10027
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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