Trade Policy Uncertainty, Firm Heterogeneity and Export Mode

This paper develops a Melitz-style trade model to consider how trade policy uncertainty (TPU) affects the export mode of heterogeneous firms. With the reduction of TPU, firms are more likely to engage in ordinary exports, and the proportion of ordinary exports relative to processing exports increases. This effect is more pronounced for firms with medium productivity. Based on highly disaggregated product-level trade data and firm-level production data, this paper adopts econometric methods to empirically identify the impact of TPU on heterogeneous firms' choice of export mode, which provides robust evidence for the prediction of the theoretical model. This paper also puts forward some policy implications.