Whose Policy Uncertainty Matters in the Trade between Mexico and the US?

Abstract

The main goal of this paper is to determine whose policy uncertainty affects commodity trade flows between the US and Mexico the most. By using monthly data from each of the 93 industries that trade between the two countries, we find that while, in the short-run, trade by most industries is affected by US and Mexican policy uncertainty measures, in the long run only a limited number of industries are affected. More precisely, 17 US exporting industries to Mexico, with 30 per cent export share, are affected positively by the US uncertainty measure and 21 US exporting industries with 45 per cent export share are affected negatively by the Mexican uncertainty measure. On the other hand, 25 Mexican exporting industries to the US with only 4.9 per cent export share are affected by the US uncertainty measure and 27 Mexican exporting industries with 5.1 per cent export share are affected by the Mexican uncertainty measure. Thus, both uncertainty measures have their largest long-run effects on US exports to Mexico.