IMF Working Papers

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Ibrahim Nana, Rasmané Ouedraogo, and Sampawende J Tapsoba. The Heterogeneous Effects of Uncertainty on Trade, (USA: International Monetary Fund, 2024) accessed November 8, 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

This paper empirically investigates the relationship between uncertainty and trade. We use a gravity model for 143 countries over the 1980-2021 period to assess the impact of uncertainty on bilateral trade. We confirm that, in general, uncertainty has a negative impact on trade. The findings suggest that a one standard deviation increase in global uncertainty is associated with a decline in bilateral trade by 4.5 percent, with fuel and industrial products trade being the most impacted. This negative impact is observed for uncertainty on both sides of the border, with a higher impact of uncertainty from the importing country. The article goes deeper into the analysis and shows that deeper trade integration (horizontal integration) mitigates the negative impact of uncertainty on trade. In contrast, higher participation in global value chains (vertical integration) amplifies the negative effect of uncertainty on trade. We find that geopolitical tensions amplify the deterrent effect of uncertainty on trade. Finally, the result is heterogeneous across income levels, regions, and resource endowment: (a) uncertainty has a negative impact on bilateral trade between Emerging Markets and Developing Economies and Advanced Economies; however, (b) at the regional level, Africa and Europe’s intraregional trade decrease as uncertainty surges. (c) Evidence shows that non-resources-rich countries are more at risk.

Subject: COVID-19, Econometric analysis, Exports, Gravity models, Health, Imports, International trade, Plurilateral trade

Keywords: Africa, Bilateral trade, COVID-19, Europe, Exports, Geopolitics, Global, Global Value Chains, Gravity model, Gravity models, Importing country, Imports, Middle East, Plurilateral trade, Resource endowment, Sectoral trade, Trade, Trade decrease, Uncertainty

Publication Details

  • Pages:

    45

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2024/139

  • Stock No:

    WPIEA2024139

  • ISBN:

    9798400280566

  • ISSN:

    1018-5941