Journal
AMERICAN ECONOMIC JOURNAL-ECONOMIC POLICY
Volume 7, Issue 4, Pages 189-222Publisher
AMER ECONOMIC ASSOC
DOI: 10.1257/pol.20140068
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Funding
- University of Maryland (UMD) Economics Department
- National Science Foundation (NSF) [SES-1360738, SES-1360780]
- Direct For Social, Behav & Economic Scie [1360738] Funding Source: National Science Foundation
- Direct For Social, Behav & Economic Scie
- Divn Of Social and Economic Sciences [1360780] Funding Source: National Science Foundation
- Divn Of Social and Economic Sciences [1360738] Funding Source: National Science Foundation
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In a dynamic model with sunk export costs, a firm's export investment is lower under trade policy uncertainty, and credible preferential trade agreements (PTAs) increase trade even if current tariffs are low. Exploring Portugal's accession to the European Community as a policy uncertainty shock we find that the trade reform accounted for a large fraction of Portuguese exporting firms' entry and sales; the accession removed uncertainty about future EC trade policies; and this uncertainty channel accounted for a large fraction of the predicted growth. Our approach can be applied to other PTAs and sources of policy uncertainty.
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