Essays on Investment and Trade under Policy Uncertainty

The rise in protectionism in recent years has significantly influenced worldwide business sentiment, especially trade policy uncertainty (TPU). This thesis aims to investigate the impact of TPU on investment and export. It includes three empirical studies, with one study conducting the analysis at the country-industry level and the others focusing on firm-level analysis. The first empirical study aims to examine trade diversion effects in the context of the U.S. – China trade war and analyse the influence of distances on these outcomes. Results show that the U.S. – China trade war positively affects the U.S. imports from bystander countries. The trade diversion effects are negatively influenced by economic, technological and institutional dimensions of distance from China. The second empirical study aims to construct a firm-level measure of TPU and explore its impact on investment in a small open economy, using Vietnam as a case study. Results of TPU measurement reveal that there was a substantial increase in the TPU index, particularly notable from 2016 onwards. This period coincides with the surge in trade protectionism and notable occurrences such as the U.S. withdrawal from the Trans- Pacific Partnership (TPP), and the U.S. – China trade war. Our regression model provides evidence of the adverse impact of TPU on investment. Furthermore, firms’ responses to TPU exhibit variations contingent on the sources of uncertainty, ownership and trade status. The third empirical study aims to investigate the impact of trade uncertainty on firm-level export decisions, examining both its influence on the decision to export and its role in shaping the choice between direct and indirect export modes. Our findings suggest that trade uncertainty increases the likelihood of domestic-only sales, enhances the probability of indirect exporting, and decreases the probability of direct exporting. The effect of trade uncertainty on export decisions is more significant for firms with smaller size, higher uncertainty avoidance, facing greater institutional constraints or operating in comparatively disadvantageous industries. This thesis makes several contributions to three strands of literature on TPU. In the first strand of literature, focusing on TPU measurement, it offers a comprehensive measurement of different types of TPU at the firm level. Moreover, it provides empirical evidence of TPU in a small open economy such as Vietnam. In regard to the second strand centred on causes of TPU, while existing research recognises the U.S. – China v trade war as a major cause of TPU in these two countries, this thesis adds to the literature by demonstrating its spillover effects on TPU in a small open economy. Focusing on the U.S. – China trade war, it also offers insights into the literature on trade diversion, specifically by highlighting the role of distance between the initial trade partner and the alternative trade partner in driving the trade diversion effect. Finally, in the third strand exploring consequences of TPU, it has been one of the first attempts to explore impacts of different types of TPU on investment. It is also the first comprehensive investigation of impacts of TPU on the export mode decision – making process.

Name dc:type.qualificationname

PhD

Level dc:type.qualificationlevel

Doctoral

Grantor dc:publisher.institution

De Montfort University

Year dc:date.issued

2024

Author dc:creator

• Le, Phan Ai Nhan

Licence

• https://dora.dmu.ac.uk/bitstreams/81d493d2-0aaa-427f-88e8-c87a2442b004/download