This paper studies how reduction in trade policy uncertainty affects firm export decisions. Using a firm–product level dataset on Chinese exports to the United States and the European Union in the ...years surrounding China's WTO accession, we provide strong evidence that reduction in trade policy uncertainty simultaneously induced firm entries to and firm exits from export activity within fine product-level markets. In addition, we uncover accompanying changes in export product prices and quality that coincided with this reallocation: firms that provided higher quality products at lower prices entered the export market, while firms that had higher prices and provided lower quality products prior to the changes, exited. To explain the simultaneous export entries and exits, as well as the fact that new entrants are more productive than exiters, we provide a model of heterogeneous firms which incorporates trade policy uncertainty, tracing the effects of the changes in policy uncertainty on firm-level payoffs and the resulting selection effects.
We build into a Ricardian model sectoral linkages, trade in intermediate goods, and sectoral heterogeneity in production to quantify the trade and welfare effects from tariff changes. We also propose ...a new method to estimate sectoral trade elasticities consistent with any trade model that delivers a multiplicative gravity equation. We apply our model and use our estimated elasticities to identify the impact of NAFTA's tariff reductions. We find that Mexico's welfare increases by 1.31%, U.S.'s welfare increases by 0.08%, and Canada's welfare declines by 0.06%. We find that intra-bloc trade increases by 118% for Mexico, 11% for Canada, and 41% for the U. S. We show that welfare effects from tariff reductions are reduced when the structure of production does not take into account intermediate goods or input-output linkages. Our results highlight the importance of sectoral heterogeneity, intermediate goods, and sectoral linkages for the quantification of the welfare gains from tariffs reductions.
This study proposes a novel channel through which trade liberalization may induce innovation through the reduction of trade policy uncertainties (TPU) in destination markets. To verify this linkage, ...we utilize the significant reduction of TPU engendered by China’s accession to the World Trade Organization (WTO) in 2001 as a quasi-natural experiment. We find that reduction in TPU significantly encourages firms’ patent application: firms in sectors with a larger reduction in uncertainty filed more invention patent applications after China’s WTO accession. We also find that firms’ innovation responses to TPU reduction vary by productivity, ownership, exporting status, and the irreversibility of investment.
•Trade liberalization may induce innovation through the reduction of trade policy uncertainty (TPU) in destination markets.•We use the significant reduction of TPU engendered by China's accession to the WTO in 2001 as a quasi-natural experiment.•Firms in sectors with a larger reduction in TPU filed more invention patent applications after China's WTO accession.•Firms' innovation responses vary by productivity, ownership, exporting status, and the irreversibility of investment.
We estimate how a rise in uncertainty about future tariff rates impacts firm decisions to enter into and exit from export markets. Using Chinese customs transactions between 2000 and 2009, we exploit ...time-variation in product-level trade policy and find that Chinese firms are less likely to enter new foreign markets and more likely to exit from established foreign markets when their products are subject to increased trade policy uncertainty. Our analysis is based on the phenomenon of “tariff echoing” – after a tariff hike in one country, another country is likely to raise its tariff on the same product. Overall, we find that if there had been no trade policy uncertainty created by the use of contingent tariffs, Chinese entry into foreign markets would have been roughly 2% higher per year. We use our model to counterfactually estimate how much entry by Chinese firms over 2001–2009 was due to future trade policy certainty provided by membership in the WTO.
In the face of the shocks from trade policy uncertainty (TPU), China needs to improve urban energy efficiency (EE) to achieve its “carbon neutrality” goals as scheduled, but the existing literature ...has no systematic research on this topic. This paper develops and estimates TPU and EE indexes by adopting the Bartik instrument's methods and dynamic slacks-based measure (DSBM). Furthermore, the authors conduct empirical tests on the influencing effect and transmission mechanism of falling TPU on urban EE after the US granted China permanent normal trade relations (PNTR) status in 2001 with a difference-in-difference (DID) model. The results of the empirical study show that urban EE improves by around 1.9% when TPU falls by 1%. A heterogeneity analysis also shows that a falling TPU has a more significant impact on EE in provincial capitals, open cities, “hygienic cities,” highly marketized cities, and cities with a higher share of manufacturing. Falling TPU reduces the cost of foreign capital inflow into China. It drives progress in green technologies, thus improving urban EE by replacing energy factors with innovation-driven non-energy factors. Further, export expansion and export technology complexity significantly raise the stimulating impact of falling TPU on improvement in EE, but growing processing trade impedes this impact. The findings in this study offer a new perspective on estimating the effect of China's policies to respond to global climate change against the shock from TPU and provides new evidence for strengthening global energy cooperation.
•Trade policy uncertainty(TPU)decreased by 1%, and urban energy efficiency improved by about 1.9%.•Trade policy uncertainty improves energy efficiency by reducing the cost of foreign investment and promoting innovation.•Export dynamics of different dimensions play an important role in explaining energy efficiency changes.•We assess the effect of China's policies on global climate change under the impact of TPU from a new perspective.
This paper exploits India's rapid, comprehensive, and externally imposed trade reform to establish a causal link between changes in tariffs and firm productivity. Pro-competitive forces, resulting ...from lower tariffs on final goods, as well as access to better inputs, due to lower input tariffs, both appear to have increased firm-level productivity, with input tariffs having a larger impact. The effect was strongest in import-competing industries and industries not subject to excessive domestic regulation. While we find no evidence of a differential impact according to state-level characteristics, we observe complementarities between trade liberalization and additional industrial policy reforms.
Using a sample of Chinese listed firms in new energy vehicle industry over the period of 2007 to 2018, we examine the impact of trade policy uncertainty on corporate innovation. We find that ...uncertainty concerning trade policy is positively associated with more R&D and patents. Moreover, government subsidy and managerial ownership mitigate the strength of the relation between trade policy uncertainty and corporate innovation. Our conclusions are robust to a variety of sensitivity tests and we use two-stage least squares (2SLS) instrumental variable approach to address the potential endogeneity concerns.
•Uncertainty concerning trade policy is positively associated with more R&D and patents.•Government subsidy mitigates the strength of the relation between trade policy uncertainty and corporate innovation.•Managerial ownership mitigates the strength of the relation between trade policy uncertainty and corporate innovation.
To achieve a carbon-neutral target, alongside the prevailing trade protectionism and the increasing pressure for environmental protection, clarifying the relationship between trade policy uncertainty ...and energy intensity is particularly important. This paper utilizes the natural experiment of China's World Trade Organization accession to identify reductions in trade policy uncertainty (TPU) and constructs a difference-in-differences model to explore the effect of TPU reduction on the energy intensity of Chinese industrial firms. The empirical results reveal that (1) TPU reduction significantly decreases firm's energy intensity; (2) Export, innovation and technical progress are mechanisms to interpret the decline of energy intensity after the reduction of TPU; and (3) The energy-saving effect of TPU reduction is higher for foreign-funded and privately owned firms than for state-owned firms, higher for coastland firms than for inland firms, and higher for polluting firms than for others. In addition, the degree of marketization and absorptive capacity of technology transfer in regions can increase the effect of TPU reduction on energy intensity. These conclusions provide evidence that decreasing the degree of TPU can help achieve the targets of energy conservation and emission reduction.
•Microdata of Chinese industrial enterprises are used during 1999–2009.•A difference in differences model is used.•The reduction of trade policy uncertainty decreases firm's energy intensity.•Energy intensity reduction is mediated by export, innovation and technical progress.•Enterprise heterogeneity affects the effect of trade policy uncertainty reduction on energy intensity.
We characterise the operation of the World Trade Organization's Trade Policy Review as an exercise, albeit valuable, in performative transparency. We describe steps taken by the St. Gallen Endowment ...for Prosperity Through Trade to augment this review process so as contribute towards meaningful transparency. Drawing from recent Trade Policy Reviews of G20 countries, specific examples are described where revealing evidence was provided that facilitates government assessment of their economies' exposure to the commercial policy practices of the reviewed nation. While a step forward, further steps are needed to attain meaningful transparency at the multilateral level that translates into better commercial policies.
The present paper explores the impact of trade policy uncertainty (TPU) on agricultural commodity prices (ACP) by employing bootstrap full- and subsample rolling-window Granger causality tests. We ...find that TPU has both positive and negative effects on ACP, suggesting that TPU may change the supply of and demand for agricultural commodities, leading to fluctuations in ACP. These results support the hypotheses derived from the general equilibrium model, which highlights that TPU can significantly affect ACP. In turn, we find a positive impact of ACP on TPU, indicating that the agricultural commodity market reflects trade conditions in advance. In the context of Sino-U.S. trade frictions and the COVID-19 pandemic, the interaction between TPU and ACP can provide insights for governments to prevent large fluctuations in agricultural commodity markets and stabilize the national economy.
•We explore the role of trade policy uncertainty (TPU) in agricultural commodity prices (ACP).•We employed the bootstrap full- and sub-sample rolling-window Granger causality tests.•Our results shows both positive and negative effects of TPU to ACP.•ACP to TPU shows only positive impact.•Our results are supported by the interaction mechanism stating the mutual influence.
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