The Influence of International Economic Policies on Global Trade and Development During Periods of Economic Uncertainty

Abstract

The primary aim of this research is to examine the impact of international economic policy on international trade and economic growth under conditions of high economic uncertainty. The primary research concern lies in the concept of the uncertainty trap, which occurs due to the presence of informational gaps as a result of shifts in economic policies. These informational gaps hinder foreign investments and distort the value chain worldwide. Through the use of qualitative research design, along with indicators such as the Economic Policy Uncertainty (EPU) Index by Baker, Bloom & Davis, the study will explore the impact of policy shocks on market performance. This will be done by contrasting developed countries against developing countries using empirical data collected between 2018 and 2023. Economic policy uncertainty becomes one of the main non-tariff barriers to trade. Based on the statistics, a 10% increase in EPU could cause a significant reduction in the volume of trade, particularly for countries where the capital flow is highly unstable. What is important is that the economic development of the digital economy can provide smooth trade transactions because this way it will act as a hedge from any policy problems. Predictability and rule-based multilateralism are essential for sustainability. Transparency in policy-making is key to reducing the 'wait-and-see' approach among foreign investors.