Determinants of international Economic Policy Uncertainty transmission: The role of economic openness

Tan, Sook Rei;Yeap, Xiu Wei;Li, Changtai;Wang, Wei-Siang;Chia, Wai-Mun

Abstract

This paper investigates the transmission of Economic Policy Uncertainty (EPU) across nations using a two-stage research methodology. In the first stage, EPU spillbacks and spillovers across 20 sample countries are estimated. In the second stage, we employ panel data regression to examine the relationships between economic openness indicators and EPU spillbacks and spillovers in 20 countries, covering the period from 2001Q4 to 2022Q2. The findings indicate that advanced nations are net transmitters of EPU risks, while emerging and developing nations are net receivers. Additionally, the analysis demonstrates a positive correlation between financial openness and EPU connectedness, and a negative correlation between trade openness and EPU connectedness, which suggests that trade openness can help alleviate EPU risk transmission. This paper emphasizes the critical importance of comprehending the transmission effect of EPU and its determinants in assisting policymakers in devising effective policy remedies to counteract external EPU shocks.

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International Review of Economics & Finance

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1873-8036

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Elsevier

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DOI

10.1016/j.iref.2024.103467