Trading with Friends in Uncertain Times

June 16, 2023

Preview Citation

Format: Chicago

Adam Jakubik, and Michele Ruta. Trading with Friends in Uncertain Times, (USA: International Monetary Fund, 2023) accessed September 26, 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

In this paper we seek to answer the question of how the patterns of bilateral trade are altered by rising trade policy uncertainty (TPU). Specifically, we investigate whether geopolitical alignments between country pairs determine how bilateral trade flows react during periods of greater uncertainty. Using a structural gravity framework augmented with a text-based TPU index and a geopolitical distance measure based on UN General Assembly voting records, we find a significant negative effect of the latter when TPU is elevated, indicating a shift to trading among “friends” in uncertain times.

Subject: International trade, Plurilateral trade, Trade balance, Trade barriers, Trade policy, Trade tensions

Keywords: Benchmark result, Geopolitical distance, Global, Importer-exporter FE, Plurilateral trade, Text-based TPU index, Textual analysis, Trade balance, Trade barriers, Trade pattern, Trade patterns, Trade policy, Trade policy uncertainty, Trade tensions, World uncertainty index

Publication Details

Pages:

19
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2023/124
Stock No:

WPIEA2023124
ISBN:

9798400244698
ISSN:

1018-5941

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