Trade Uncertainty and Investment in the Euro Area

December 11, 2018

Preview Citation

Format: Chicago

Christian H Ebeke, and Jesse Siminitz. Trade Uncertainty and Investment in the Euro Area, (USA: International Monetary Fund, 2018) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We analyze the impact of trade policy uncertainty on investment in the euro area. Our identification strategy assumes that countries that are relatively more dependent on global trade networks exhibit a higher sensitivity of investment with respect to trade uncertainty. We find that 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. We demonstrate that these results are unlikely to be driven by omitted variables and that they are robust to different measures of trade uncertainty and trade openness. Our analysis suggests that the detrimental effect of trade tensions goes beyond lower trade growth, as uncertainty can reduce investment and the economy’s long-term growth potential.

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 Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2018/281
Stock No:

WPIEA2018281
ISBN:

9781484388808
ISSN:

1018-5941

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