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Trading with Friends in Uncertain Times
Author:
Adam Jakubik
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Michele Ruta
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Series:
IMF Working Papers
Volume/Issue:
Volume 2023: Issue 124
Language:
English
Publication Date:
16 Jun 2023
DOI:
https://doi.org/10.5089/9798400244698.001
ISBN:
9798400244698
ISSN:
1018-5941
Pages:
19
Keywords:
trade policy uncertainty; geopolitical distance; trade patterns; textual analysis; World uncertainty index; trade pattern; benchmark result; text-based TPU index; importer-exporter FE; Trade policy; Trade balance; Plurilateral trade; Trade tensions; Trade barriers; Global
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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.
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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.
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Cover IMF Working Papers
IMF Working Papers
ISSN:
1018-5941
Publisher:
International Monetary Fund