Trading with Friends in Uncertain Times
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Summary:
In this paper we seek to answer the question of how the patterns of bilateral trade are altered by rising trade policy uncertainty (TPU). Specifically, we investigate whether geopolitical alignments between country pairs determine how bilateral trade flows react during periods of greater uncertainty. Using a structural gravity framework augmented with a text-based TPU index and a geopolitical distance measure based on UN General Assembly voting records, we find a significant negative effect of the latter when TPU is elevated, indicating a shift to trading among “friends” in uncertain times.
Series:
Working Paper No. 2023/124
Subject:
International trade Plurilateral trade Trade balance Trade barriers Trade policy Trade tensions
Frequency:
regular
English
Publication Date:
June 16, 2023
ISBN/ISSN:
9798400244698/1018-5941
Stock No:
WPIEA2023124
Format:
Paper
Pages:
19
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