covered is 1995-2018 in specification (1) 1995-2017 in specifications (2)-(4) and 1995-2014 in specification (5). Growth indicators are computed as log-differences. The number reported in each cell comes from a specific regression and represents the coefficient of log of EPU index, either contemporaneous or lagged, depending on the specification. All regressions include country and time fixed effects as well as controls for growth in absorption and in relative prices.

A simple calculation based on our main specification in Table 2 indicates that EPU may explain a significant proportion of the recent decline in trade growth. Since the EPU index increased by approximately 50 percent from mid-2018 to mid-2019 relative to the same period in the previous year, increased policy uncertainty may have reduced growth in goods and services import volumes by one percentage point (i.e., 50*0.02). Preliminary estimates from the CPB World Trade Monitor suggest a difference in the growth rates of global merchandise import volumes of –3 percentage points between the same two periods, which implies that economic policy uncertainty could explain about a third of the decline in trade growth.

We undertake a number of tests to assess the robustness of the relationship between economic policy uncertainty and trade growth. Varying the scope of import volume growth to cover goods and services, goods alone (using data from different sources), using dynamic specifications, and/or replacing REER by the ratio of import price deflator to GDP deflator, consistently yield negative and significant coefficients of policy uncertainty (Tables 3 and A1). The use of changes in economic policy uncertainty instead of levels also leads to consistently significant coefficients of interest (Table 4). Trade policy creates a wedge between domestic and international prices which is accounted for by our measures of relative prices. Nevertheless, to rule out a potential omitted variable bias, we run regressions that explicitly control for trade policy in the form of tariffs and find that the coefficient of policy uncertainty is not affected (see Appendix Table A2).

**Table 4.** **_Association between import volume growth and economic policy uncertainty growth: estimations using yearly data_**

|Dependent variables:|Growth in good<br>import v|s and services<br>olume|Growth in g<br>volu|oods import<br>me|
|---|---|---|---|---|
||(1a)|(1b)|(2a)|(2b)|
|Growth in the Economic Policy Uncertainty (EPU) index|‐0.0290**|‐0.0377**|‐0.0378**|‐0.0462***|
||(0.0135)|(0.0135)|(0.0164)|(0.0158)|
|Growth in Real GDP|1.464***|1.457***|1.441***|1.435***|
||(0.212)|(0.212)|(0.285)|(0.284)|
|Growth in Real effective exchange rate|0.160|0.154|0.169*|0.163*|
||(0.0989)|(0.0976)|(0.0829)|(0.0812)|
|Constant|0.0719***|0.0703***|0.0755***|0.0737***|
||(0.0162)|(0.0152)|(0.0183)|(0.0168)|
|Country fixed effects|Yes|Yes|Yes|Yes|
|Year fixed effects|Yes|Yes|Yes|Yes|
|R‐squared|0.702|0.707|0.690|0.695|
|Number of observations|399|399|399|399|

_Source_ : International Monetary Fund World Economic Outlook, International Monetary Fund International Financial Statistics, <u>www.PolicyUncertainty.com,</u> Baker et al. (2016), and authors’ calculations. See Table 1 for details. Notes: Heteroscedasticityrobust 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).

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