Time-Varying Spillover of us Trade War on the Growth of Emerging Economies

Abstract

In the wake of an unprecedented increase in the trade policy-related uncertainty of the US since 2017, we analyze the ability of a newspaper-based trade policy uncertainty index of the US in predicting the growth rate of emerging market economies using a novel multivariate time-varying causality framework. We provide overwhelming evidence of the role of trade uncertainty in negatively impacting the growth of emerging markets in a statistically significant manner, with the effect being on the rise since the Great Recession. Our results are robust to the usage of an alternative econometric methodology, metric of trade uncertainty, and also over an out-of-sample forecasting exercise. Policy conclusions of our results are discussed.