Economic Policy Uncertainty and Trade Flows: Evidence from the Asia-Pacific Region

Amidst the polycrisis of 2018–2024, Asia-Pacific trade flows exhibited a structural resilience that contrasts with traditional theoretical predictions of severe trade contraction under high uncertainty. This study investigates these resilience dynamics using a structural gravity model estimated via the Poisson Pseudo Maximum Likelihood (PPML) approach. The analysis utilizes a balanced panel of 14 key regional economies (N = 4914), explicitly disaggregated into geographic (ASEAN-6 vs. non-ASEAN) and global value chain (high vs. low GVC intensity) subgroups to capture heterogeneous responses. The empirical results confirm that economic policy uncertainty (EPU) acts as a significant trade friction (β = −3.371), consistent with the wait-to-invest mechanism of real options theory. However, this effect is heterogeneous and significantly mitigated by institutional frameworks. We identify a robust institutional shield effect, where participation in trade agreements effectively neutralizes the adverse transmission of policy shocks (interaction coefficient = 3.396). Furthermore, this study uncovers a structural break during periods of extreme geopolitical conflict, characterized by a convex U-shaped relationship between uncertainty and trade. This pattern provides macro-level evidence of a behavioral shift in regional supply chains from a just-in-time cost-efficiency optimization model to a just-in-case security maximization paradigm, consistent with precautionary inventory accumulation. These findings underscore the critical role of modern trade pacts as institutional credibility anchors and the necessity of adaptive strategies in navigating heightened macroeconomic volatility.