Whose policy uncertainty matters in the trade between Mexico and the U.S.: Additional evidence from asymmetric analysis

Abstract

A previous study that analyzed the impact of the U.S. and Mexican policy uncertainties on trade flows between the two countries assumed that the effects are symmetric. In this paper, we argue and demonstrate that the effects could be asymmetric. Since asymmetry analysis requires nonlinear models, we discover relatively more significant and exciting results. A total of 93 industries that trade between the U.S. and Mexico are included in the study. While we found short-run asymmetric effects in most industries, long-run asymmetric effects were discovered in about 25% of the industries. The findings were industry specific. For example, the largest U.S. exporting industry to Mexico (Electric machinery with 16.27% export share) was hurt by increased uncertainty in Mexico but helped by increased uncertainty in the U.S. On the other hand, the largest Mexican exporting industry to the U.S. (Vehicles and Parts with 28.3% export share) was helped by increased uncertainty in the U.S. but not by any changes in the Mexican uncertainty.