average of the EPU index from November of the previous year through October of the current year).

Economic policy uncertainty may influence trade by affecting GDP. But policy uncertainty can also have a direct impact on trade. This is the case, for example, when policy uncertainty affects the behavior of foreign firms, leading them to reduce the investment in serving the domestic market. Insofar as the specification above controls for the impact on trade of GDP changes, the coefficient of the policy uncertainty variable can be seen as reflecting the direct effect on trade.

The regression results indicate a statistically significant relationship between economic policy uncertainty and trade growth: a 1 percent increase in uncertainty is associated with a 0.02percentage point reduction in import volume growth. The relationship with goods alone is as strong as for goods and services together, even though border policies affecting goods trade (e.g. tariffs) are easier for governments to change and therefore should be more sensitive to uncertainty than behind-the-border policies affecting services trade (e.g. domestic regulations).<sup>4</sup> Growth in Real GDP and REER have the expected signs and are significant. The results are robust to specifications that allow dynamic effects in both the dependent variable and covariates such as growth in real GDP and growth in REER (table A1).

**Table 2.** **_Association between import volume growth and economic policy uncertainty: estimations using yearly data_**

|Dependent variables:|Growth in goo<br>import|ds and services<br>volume|Growth in g<br>volu|oods import<br>me|
|---|---|---|---|---|
||(1a)|(1b)|(2a)|(2b)|
|Log of Economic Policy Uncertainty (EPU) index|‐0.0223**<br>(0.00800)|‐0.0242***<br>(0.00831)|‐0.0228**<br>(0.00904)|‐0.0248**<br>(0.00899)|
|Growth in Real GDP|1.429***|1.429***|1.409***|1.409***|
||(0.201)|(0.202)|(0.273)|(0.274)|
|Growth in Real effective exchange rate|0.155|0.153|0.164*|0.162*|
||(0.1000)|(0.0996)|(0.0876)|(0.0872)|
|Constant|0.171***|0.178***|0.178***|0.186***|
||(0.0432)|(0.0440)|(0.0501)|(0.0505)|
|Country fixed effects|Yes|Yes|Yes|Yes|
|Year fixed effects|Yes|Yes|Yes|Yes|
|R‐squared|0.701|0.702|0.684|0.686|
|Number of observations|407|407|407|407|

_Source_ : International Monetary Fund World Economic Outlook, International Monetary Fund International Financial Statistics, World Trade Organization, World Bank World Development Indicators, www.PolicyUncertainty.com, Baker et al. (2016), and authors’ calculations. See Table 1 for details on sources and definitions. Notes: Heteroscedasticity-robust standard errors corrected for clustering at country level are reported in parentheses. * p<0.10; ** p<0.05; *** p<0.01. Panel covers 18 countries and period 1995-2018. Growth indicators are computed as log-differences. A lag effect is allowed in specifications 1b and 2b. Specifically, the EPU aggregate for year _t_ is based on monthly indexes from January through December of year _t_ , in specifications 1a and 2a, and from November of year _t-1_ through October of year _t_ , in specifications 1b and 2b. Results for goods import volume specifications are robust to using data on goods import volume from World Trade Organization.

> 4 Data on services import volumes are not reported separately by any international organization.  Therefore, we do not run a separate regression for services import volumes.

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