Research on the Impact of Global Economic Policy Uncertainty on Manufacturing: Evidence from China, the United States, and the European Union

Abstract

Events such as COVID-19 and the Russia–Ukraine conflict have significantly increased the uncertainty and volatility of global economic policies. In the context of economic globalization, the key question we investigate is whether global economic policy uncertainty will have different impacts on the manufacturing of the three major economies in China, the United States, and Europe Union. This study employs the time-varying parameter vector autoregressive (TVP-VAR) model to examine how global economic policy uncertainty (GEPU) affected manufacturing from March 2008 to March 2023. The empirical results show that the effects of GEPU are time varying; its short-term effects on Chinese manufacturing are slightly greater than its medium- and long-term effects, whereas its medium- and long-term effects on manufacturing in the United States (US) and European Union (EU) are significantly greater than its short-term effects. The impact of European debt crisis, the China–US trade war and Russia–Ukraine conflict on EU manufacturing is higher than that of China and the US, and the impact of the COVID-19 pandemic on China’s manufacturing is much smaller than that of the US and the EU; thus, Chinese manufacturing has a greater capacity for risk mitigation than US and EU manufacturing. This study not only provides a new perspective on the study of global economic policy uncertainty; it also provides new empirical evidence on how global economic policy uncertainty affects the manufacturing sector in China, the US and Europe and provides policymakers with guidance for decision making.