Investment under Trade Policy Uncertainty: an Empirical Investigation

The link between trade policy uncertainty and the share of investment in GDP per capita is investigated using panel data drawn from over a hundred countries for the period 1960-2000. Five indicators of trade policy are used. Two specifications of volatility for each of the trade policy indicators are constructed as measures of trade policy uncertainty. Panel regression results suggest a robust correlation between the volatility of trade policy indicators and the investment share. A significant negative impact of trade policy volatility on the investment share is found in most trade policy indicators with an exception-the volatility of the trade share indicator more closely associated with volatility in quantity than in prices has a significant positive impact on the investment share. Copyright © 2006 The Authors; Journal compilation © 2006 Blackwell Publishing Ltd.