Prague Economic Papers 2020, 29(5):600-622 | DOI: 10.18267/j.pep.754

The Effects of Economic Policy Uncertainty on Export: A Gravity Model Approach

Fei Jiaa, Xiaoyong Huangb, Xiangyun Xuc, Haoyu Sund
a School of Statistics, Jilin University of Finance and Economics, Changchun, China
b School of Finance, Jiangxi Normal University, Nanchang, China
c School of International Economics and Business, Nanjing University of Finance and Economics, Nanjing, China
d College of Business, Shanghai University of Finance & Economics, Shanghai, China

We use a gravity model that accounts for multilateral resistance terms (MRT) to examine the impact of economic policy uncertainty (EPU) on a country's export. Empirical analysis based on data from 20 countries that traded with one another (creating 380 pairs of importing-exporting countries) over the period 2002-2016 shows that the export of a country is negatively associated with the EPU of its corresponding importing country, but not with the EPU of the exporting country itself. This effect remains qualitatively unchanged regardless whether the exporting country is a developed or a developing economy and whether it focuses on commodities or non-commodities, but the effect is smaller for commodity exporters. Furthermore, the observed negative effect is more pronounced when the unemployment rate in the importing country is high, whilst GDP growth in the importing country does not influence the focal relationship. These findings advance the literature by highlighting the importance of accounting for the differential effects of policy uncertainty in importing and exporting countries and of taking into consideration country and product heterogeneity when analysing the effects of EPU on exports.

Keywords: Economic policy uncertainty, international trade, importing, exporting
JEL classification: D81, F13, F14

Received: May 27, 2019; Revised: March 5, 2020; Accepted: May 7, 2020; Prepublished online: June 24, 2020; Published: October 16, 2020  Show citation

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Jia, F., Huang, X., Xu, X., & Sun, H. (2020). The Effects of Economic Policy Uncertainty on Export: A Gravity Model Approach. Prague Economic Papers, 29(5), 600-622. doi: 10.18267/j.pep.754
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