Temporal dynamics of uncertainty shocks on China's trade openness: A TVP-VAR estimation

This study examines the impact of multiple uncertainty factors on China's trade openness from 1997 to 2023. Employing a time-varying parameter vector autoregression (TVP-VAR) model, we analyze how geopolitical risks, economic policy uncertainties, trade policy uncertainties, and climate policy uncertainties affect China's export-to-import ratio over different time horizons. The analysis incorporates both global and China-specific uncertainty indices to capture domestic and international dimensions. Our results indicate that uncertainty shocks exhibit their strongest effects in the first quarter following the shock, with impacts diminishing but remaining significant over longer horizons. The time-varying impulse response functions reveal differential effects across various economic periods, including notable responses following major economic events such as the 2008 financial crisis and subsequent Eurozone debt crisis. We find that climate policy developments coincide with observable shifts in trade patterns, which could be associated with changes in environmental technology sectors. These findings have implications for understanding how trade flows respond to various shocks in an increasingly complex global economic environment.