Market Uncertainty and International Trade

67 Pages Posted: 22 Nov 2019 Last revised: 3 May 2023

See all articles by Haichao Fan

Haichao Fan

Fudan University - School of Economics

Guangyu Nie

Shanghai University of Finance and Economics

Zhiwei Xu

Fudan University - School of Economics

Date Written: September 1, 2019

Abstract

We study the consequences of market uncertainty on international trade. An increase in foreign market uncertainty dampens China's aggregate exports on both the extensive and intensive margins. The adverse effects are more pronounced in industries facing tighter financial constraints than in others. We propose a dynamic trade model to explain the facts. Greater uncertainty depresses a firm's expected value of exporting and borrowing capacity, leading to fewer exporters and smaller average size of exports. Under calibrated parameters, the uncertainty shock accounts for a sizable fraction of China's trade collapse in the 2008 financial crisis.

Keywords: Market Uncertainty, Trade Collapse, Financial Constraint, Extensive Margin, Intensive Margin

JEL Classification: F10, F41, F44

Suggested Citation

Fan, Haichao and Nie, Guangyu and Xu, Zhiwei, Market Uncertainty and International Trade (September 1, 2019). Available at SSRN: https://ssrn.com/abstract=3485366 or http://dx.doi.org/10.2139/ssrn.3485366

Haichao Fan

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

Guangyu Nie

Shanghai University of Finance and Economics ( email )

777 Guoding Road
Shanghai, Shanghai 200433
China

HOME PAGE: http://www.nieguangyu.wixsite.com/econ

Zhiwei Xu (Contact Author)

Fudan University - School of Economics ( email )

600 GuoQuan Road
Shanghai, 200433
China

HOME PAGE: http://https://xuzhiwei09.wixsite.com/econ

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
249
Abstract Views
1,285
Rank
223,410
PlumX Metrics