Uncertainties In International Trade

How uncertainties affect international trade has drawn many attentions in old and recent literatures.This thesis focuses on two representative and widely existed trade uncertainties—policy uncertainty and demand uncertainty.For policy uncertainty,we take advantage of the change of policy uncertainty before and after China's accession to the WTO to investigate the influence of policy uncertainty on trade.Meanwhile,this is also the reexamination for the conclusion made by existing literatures that the reduction of tariff uncertainty will increase export growth.For demand uncertainty,we try to explain two sorts of trade phenomenon mentioned in the literatures from the perspective of inventory costs;one is trade lumpiness;the other is the positive relation between unit value and market distance.Specifically,the research content summarized as follows:First,we reexamines this issue with a multiple difference-in-difference strategy to allow more flexible control of confounding trade policy changes that came into effect over the same period of time.Most importantly,our specification allows heterogeneous effects of the elimination of export quotas under the global Agreement on Textile and Clothing.The widely documented impact of tariff uncertainty on China's export disappears under our less restrictive specification.We further analyze the possible reasons behind the insignificant result with a simple model and secondary empirical evidence.First,measuring tariff uncertainty with tariff gap has its limitation as it presumes a substantial likelihood for the tariff increase event to happen.Our evidence suggests the likelihood might be very low as perceived by Chinese firms.Second,evidence also suggests the sunk cost of entering foreign markets for Chinese firms may be too low for potential tariff increase in the future to have any dynamic influence on firm's contemporary decisions on market entry and export.By ruling out the direct impact of tariff uncertainty removal in the U.S.market,our empirical findings suggest the accelerated growth of China's export after 2001 is unlikely to have been mainly driven by external factors.We believe a more thorough study of the internal working and evolution of China's market and resource allocation system is the key to understanding China's phenomenal export growth.Second,many studies find that firms involved in trade usually hold large inventory and therefore international trade flows are lumpy and infrequent.Existing literatures relate the phenomenon of trade lumpiness to the economies of scale in transportation.Using transaction records of Chinese exporters,we find trade is especially lumpier in distant market.Our theory and empirical study show that the correlation between lumpiness and distance is caused by the existence of demand uncertainty.Furthermore,we find that only the interaction of delivery lags and demand uncertainty can negatively affect shipment frequency.Through quantile regressions,we also verify that delivery lag and demand uncertainty can only affect the lower bound of shipment frequency.Our study indicates that distance will affect firms' behavior in trade not only through transportation cost but also the inventory management within firm.Third,for the positive relationship between distance and export unit price found by literatures,we try to explain this phenomenon from the demand uncertainty aspect.Using transaction records of Chinese exporters in 2005,we find that,after the interaction term between distance and demand uncertainty is added,the positive affect of distance on F.O.B.price is absorbed totally by the interaction term,while the coefficient of distance is no longer positive.Therefore,demand uncertainty is a very important mechanism through which demand affects F.O.B.prices.Through the Three-Step Approach used for examining mediating effects,we further find that the shipment frequency,which is used as the indirect measurement for inventory costs,reacts as the partial mediating variable in the process that the interaction term between distance and demand uncertainty affects F.O.B.prices.Therefore,inventory costs can partially explain how distance affects unit price through demand uncertainty.By regression analysis,we also find,demand uncertainty can explain the relationship between market or remoteness and unit price,but cannot explain the positive relationship between income level and unit price.