China's “Great Migration”: The impact of the reduction in trade policy uncertainty

We explore conditions under which trade agreements can provide gains by reducing trade policy uncertainty. Given the degree of income risk aversion, this is more likely when economies are more open, export supply elasticities are lower, and economies more specialized. Governments have stronger incentives to sign trade agreements when the trading environment is more uncertain. As exogenous trade costs decline, the gains from reducing tariff uncertainty become more important relative to reducing average tariff levels. We also develop a simple “sufficient statistic” approach to quantify the gains from managing trade policy uncertainty, and examine the impact of ex ante investments on such gains. (JEL D81, F13)

Download Full-text

Trade Policy Uncertainty, Innovation and Total Factor Productivity

Sustainability ◽

10.3390/su14010266 ◽

2021 ◽

Vol 14 (1) ◽

pp. 266

Author(s):

Yuan Zhou ◽

Yao Ji

Keyword(s):

Trade Policy ◽

Control Method ◽

Policy Uncertainty ◽

Synthetic Control ◽

Factor Productivity ◽

Synthetic Control Method ◽

China Trade ◽

Hong Kong Sar ◽

The Impact ◽

Trade Policy Uncertainty

This paper explores the impact of trade policy uncertainty (TPU) shock on China’s total factor productivity. Using economic panel data for China, OECD countries, Hong Kong SAR, Macao SAR, and Singapore from the period 2003–2019, in this paper, we treat U.S.–China trade frictional events in 2016 and 2017 as a quasi-experiment to study the impact of TPU surge on China’s TFP under the synthetic control method (SCM) and generalized synthetic control method (GSCM), treating the OECD countries, Hong Kong SAR, Macao SAR, and Singapore as a control group. We found that TPU surge has a significantly negative causal effect on China’s TFP. SCM analysis, taking 2016 (2017) as the policy implementation time, showed that the average TFP loss borne by China due to trade policy uncertainty in 2017 and 2018 was 2.7% (3.5%). The VAR model showed that China’s trade policy uncertainty reduces China’s TFP through two channels: the shrinking channel of domestic R&D innovation, and the shrinking channel of the domestic sector’s use of foreign patents. This conclusion is robust according to the GSCM. To the best of the authors’ knowledge, this paper is the first attempt to examine the long-term technological impact of TPU surge during U.S.–China trade frictional events. Our findings suggest that trade friction harms technological progress, and reducing TPU can significantly enhance innovation and TFP.

Download Full-text

Trade Policy Uncertainty Effects on Macro Economy and Financial Markets: An Integrated Survey and Empirical Investigation

Journal of Risk and Financial Management ◽

10.3390/jrfm14010041 ◽

2021 ◽

Vol 14 (1) ◽

pp. 41

Author(s):

Nikolaos A. Kyriazis

Keyword(s):

Financial Markets ◽

Trade Policy ◽

Empirical Investigation ◽

Policy Uncertainty ◽

Risky Assets ◽

Market Values ◽

Risk Return ◽

The Impact ◽

Trade Wars ◽

Trade Policy Uncertainty

This paper conducts a review on theoretical and empirical findings on the increasingly popular measure of trade policy uncertainty (TPU) in economics and finance. Moreover, an empirical investigation takes place in order to find the impact that TPU exerts on Bitcoin market values by employing a spectrum of Generalized Autoregressive Conditional Heteroskedasticity (GARCH) specifications. Existing studies support that trade policy uncertainty leads to lower-quality and more expensive products and weak participation in international trade. Moreover, it contributes to lower democratic sentiment, hesitant internal migration and lesser socio-economic mobility and higher fluctuations in profitable assets. Moreover, our econometric findings reveal that TPU positively affects Bitcoin prices while crude oil values negatively influence this major cryptocurrency. Thereby, higher trade policy uncertainty is found to increase demand and favorite investments into risky assets in order to ameliorate the risk-return trade-off in investors’ portfolios. This study provides a compass for investing during turmoil due to trade wars and tariffs.

Download Full-text