Collaborative Research: International Trade, Firms and Welfare under Policy Uncertainty

University Of Maryland, College Park, College Park MD

Investigators

Abstract

Firms that buy and sell products across international borders often must make important decisions without full information about future government policies. For example, an exporting firm may have to decide whether or not to invest in a new production technology even though the firm is uncertain about future trade policies that will affect its customers. This award funds a research project that seeks to measure the effects of uncertainty about trade policy on firms' investment and export decisions. The data will allow the team to measure the effects of such uncertainty during two recent events: the Great Recession and the recent global integration of the Chinese economy with the rest of the world. The project builds a basic framework for modeling and estimating the impact of trade policy uncertainty on investment and export decisions. The framework incorporates several key factors: (i) general equilibrium effects of policy reform; (ii) a set of investments that is broad enough to incorporate innovation and input choice; (iii) the interaction with pure economic uncertainty and (iv) endogenous trade policy uncertainty. The model is estimated with firm microdata.