Inventory Management with Trade Policy Uncertainty: Evidence from Chinese Exporters

Abstract

This paper empirically investigates how exporting firms manage their inventory stocks in response to an exogenous trade policy uncertainty shock. Using firm-level data on inventory and exports over the period around China’s WTO accession, we show that a reduction in trade policy uncertainty significantly increases exporting firms’ inventory holdings. We also find that the reduction in trade policy uncertainty increases the frequency and the average volume of export transactions.