Risk, Uncertainty and Exporting: Evidence from a Developing Economy

This study investigates the effects of economic policy uncertainty (EPU) and geopolitical risks (GPR) originating from various destination economies on the export demand facing a developing economy, i.e., India. We employ monthly panel data on exports from India to 29 economies spanning January 2015 to December 2019. For analysis, we use a range of estimators that address potential econometric issues such as non-stationarity, serial correlation, cross-sectional dependence, and different lag orders and breaks in error processes. Our results suggest adverse and sizeable effects of destinations’ EPU and GPR on the export revenues of India. We also find that income, relative inflation, and the exchange rate serve as channels via which uncertainty affects exports. Our evidence is novel and helps further the available body of knowledge on the impact of economic and geopolitical uncertainties on developing economies through an established channel, i.e., export.