Trade Uncertainty and Investment in the Euro Area

IMF Working Papers, December 11, 2018

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Trade Uncertainty and Investment in the Euro Area

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Bibliographic details

• Authors: Christian H Ebeke, Jesse Siminitz
• Published: December 11, 2018
• Series: IMF Working Papers
• DOI: https://doi.org/10.5089/9781484388808.001

Summary and main finding

• Study examines the impact of trade policy uncertainty on investment in the euro area.
• Identification strategy: countries relatively more dependent on global trade networks are assumed to exhibit higher sensitivity of investment to trade uncertainty.
• Key empirical result: the investment-to-GDP ratio is on average 0.8 percentage points lower for five quarters following a one standard deviation increase in the level of trade uncertainty.
• Conclusion: the detrimental effect of trade tensions goes beyond lower trade growth, as uncertainty can reduce investment and the economy’s long-term growth potential.

Identification strategy and robustness

• Identification assumption: higher trade network dependence implies greater sensitivity of investment to trade uncertainty.
• Robustness checks reported:
  • Results unlikely to be driven by omitted variables.
  • Results robust to different measures of trade uncertainty.
  • Results robust to different measures of trade openness.

Policy-relevant implications

• Trade tensions and policy uncertainty can depress investment independently of trade volume declines.
• Reducing trade policy uncertainty may help support investment and long-term growth potential in the euro area.

Subject areas and keywords (as listed)

• Subject: Economic sectors, Exports, Financial crises, International trade, Protectionism, Trade balance, Trade policy, Trade tensions
• Keywords: area trade flow, euro area, Exports, Global, investment, Protectionism, tension indicator, Trade balance, trade growth, trade measure, trade openness, trade openness variable, Trade policy, trade tension level, trade tensions, trade uncertainty, uncertainty, uncertainty shock, uncertainty variable

Publication metadata (as presented)

• Authors: Christian H Ebeke, Jesse Siminitz
• Date: December 11, 2018
• Pages: 19
• Volume: 2018
• Issue: 281
• Series: Working Paper No. 2018/281
• DOI: https://doi.org/10.5089/9781484388808.001
• Stock No: WPIEA2018281
• ISBN: 9781484388808
• ISSN: 1018-5941

IMF Working Paper — "Trade Uncertainty and Investment in the Euro Area" (Christian H Ebeke, Jesse Siminitz, December 11, 2018).

Content in this bundle

• Trade Uncertainty and Investment in the Euro Area, WP/18/281, December 2018
  • Trade Uncertainty and Investment in the Euro Area, WP/18/281, December 2018 (Markdown version)
  • Trade Uncertainty and Investment in the Euro Area, WP/18/281, December 2018 (PDF)