## The Heterogeneous Effects of Uncertainty on Trade

_IMF Working Papers, July 9, 2024_

## Source details

**Canonical URL:** [The Heterogeneous Effects of Uncertainty on Trade](https://www.imf.org/en/publications/wp/issues/2024/07/08/the-heterogeneous-effects-of-uncertainty-on-trade-551361)

## Other formats

- [Markdown version](/en/publications/wp/issues/2024/07/08/the-heterogeneous-effects-of-uncertainty-on-trade-551361/index.md)
- [Structured JSON version](/en/publications/wp/issues/2024/07/08/the-heterogeneous-effects-of-uncertainty-on-trade-551361/index.json)
- [Bundle manifest](/en/publications/wp/issues/2024/07/08/the-heterogeneous-effects-of-uncertainty-on-trade-551361/bundle-manifest.json)

## Bibliographic details
- Authors: Ibrahim Nana, Rasmané Ouedraogo, Sampawende J Tapsoba
- Published: July 9, 2024
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9798400280566.001

---

### Methodology
- Empirical analysis using a gravity model for 143 countries over the 1980-2021 period.
- Bilateral trade outcomes are the primary dependent variables examined.
- Sectoral analysis distinguishes fuel and industrial products from other sectors.
- Examination of uncertainty originating from both exporting and importing countries.
- Investigation of trade integration measures: horizontal integration (deeper trade integration) and vertical integration (participation in global value chains).
- Analysis considers the role of geopolitical tensions and heterogeneity across income levels, regions, and resource endowment.

### Key empirical findings
- General effect:
  - Uncertainty has a negative impact on trade.
  - A one standard deviation increase in global uncertainty is associated with a decline in bilateral trade by 4.5 percent.
- Sectoral impacts:
  - Fuel and industrial products trade are the most impacted sectors.
- Direction of uncertainty:
  - Negative impact is observed for uncertainty on both sides of the border.
  - There is a higher impact of uncertainty from the importing country than from the exporting country.
- Trade-integration mechanisms:
  - Deeper trade integration (horizontal integration) mitigates the negative impact of uncertainty on trade.
  - Higher participation in global value chains (vertical integration) amplifies the negative effect of uncertainty on trade.
- Geopolitical context:
  - Geopolitical tensions amplify the deterrent effect of uncertainty on trade.

### Heterogeneity of effects
- By income group:
  - Uncertainty has a negative impact on bilateral trade between Emerging Markets and Developing Economies and Advanced Economies.
- By region:
  - Africa and Europe’s intraregional trade decrease as uncertainty surges.
- By resource endowment:
  - Non-resources-rich countries are more at risk from the negative trade effects of uncertainty.

### Policy-relevant implications (as drawn from results)
- Policies that strengthen horizontal trade integration may help mitigate the negative effects of uncertainty on trade.
- High participation in global value chains can increase vulnerability to uncertainty; policymakers should consider resilience measures for vertically integrated production networks.
- Managing geopolitical tensions and reducing sources of uncertainty in importing countries could have outsized benefits for bilateral trade volumes.
- Regional and country-specific vulnerabilities (Africa, Europe, non-resources-rich countries) suggest targeted policy responses to shield intraregional trade and at-risk economies from uncertainty shocks.

*Source: The Heterogeneous Effects of Uncertainty on Trade (IMF Working Paper No. 2024/139).*

---

## Content in this bundle

- **Working Paper**
  - [Working Paper (Markdown version)](/-/media/files/publications/wp/2024/english/wpiea2024139-print-pdf.pdf.md){rel="alternate" type="text/markdown"}
  - [Working Paper (PDF)](/-/media/files/publications/wp/2024/english/wpiea2024139-print-pdf.pdf){rel="external" type="application/pdf"}

---

_Source: https://www.imf.org/en/publications/wp/issues/2024/07/08/the-heterogeneous-effects-of-uncertainty-on-trade-551361_