Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/270724 
Year of Publication: 
2023
Series/Report no.: 
WIFO Working Papers No. 659
Publisher: 
Austrian Institute of Economic Research (WIFO), Vienna
Abstract: 
This paper analyses the direct and indirect trade volume and trade cost effects of uncertainty on international trade and economic welfare using a structural gravity framework for a panel of 97 developed and developing countries from 2000 to 2018. Our results suggest that an increase in unilateral uncertainty affects average trade costs in a heterogeneous manner, depending on whether the uncertainty originates from the importing or exporting country. Moreover, using a cross-sectional gravity approach, we show that an uncertainty shock directly reduces cross-border trade flows. The paper illustrates the suitability of the proposed modeling approach by means of two counterfactual scenario analyses in which we calculate the general equilibrium trade and welfare effects of uncertainty induced by the unexpected outcome of the Brexit referendum in 2016 and the outbreak of the COVID-19 pandemic in 2020.
Subjects: 
International Trade
Trade Costs
Gravity
Uncertainty
Counterfactual Scenario Analysis
Brexit
COVID-19
JEL: 
F13
F14
F42
E60
Document Type: 
Working Paper

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