Recent slowdown in global trade: Cyclical or structural
Emine Boz, Matthieu Bussière, Clément Marsilli12 November 2014
The past three years have witnessed a slowdown in global trade. This column shows that the slowdown was particularly pronounced in advanced economies, especially the Eurozone. In a panel of 18 OECD economies, most of the slowdown can be explained by cyclical factors. However, structural factors – global value chains and especially protectionism – may have played a role too.
Douglas L. Campbell, Christopher M. Meissner, Dennis Novy, David Jacks
Global trade started to slow down markedly in the course of 2011, after it bounced back from the Great Trade Collapse of 2008–2009.1 In 2012 and 2013 the growth rate of global trade volume reached only 3%, against nearly 7% in the pre-crisis period (2002–2007) and 6.8% in the period 1985–2007 (Figure 1).
Recent growth in trade has decelerated significantly since its sharp recovery in 2010. This column discusses the role of global value chains in international trade and their contribution to the trade slowdown. Trade in complex products organised by global value chains, in particular motor vehicles, has been more sensitive to global downturn than has trade in simple products. Thus, either focusing on simpler products less dependent on global value chains, or diversifying the export folios, could be useful in reducing the risk of a slowdown in global merchandise.
Global value chains (GVCs) involve trade in goods that have multiple production stages that take place in many different countries (that is, ‘production fragmentation’ or ‘slicing up the value chain’), and in which multiple imports and exports of intermediate goods are necessary to produce a final good, which may also be exported. Since the emergence of the North American GVC in automobiles in the 1960s and the East Asian electronics GVC in the 1970s, the role of GVCs in international trade has become more important and has attracted increasing attention.
Uncertainty and the Great Trade Collapse: New evidence
Dennis Novy, Alan Taylor19 March 2014
The recent global crisis hit output, but the decline in international trade was twice as big. Standard models of trade fail to account for the severity of the event. This column proposes a new model that argues the great trade collapse was due to uncertainty. The uncertainty lead firms to postpone orders. As a result, trade declined substantially more than production. Data from the US for the past 50 years show quantitatively large effects of uncertainty shocks on the trade.
Douglas L. Campbell, Christopher M. Meissner, Dennis Novy, David Jacks
When the Great Recession hit with full force in 2008, many countries experienced a sharp decline in their economic output. However, the accompanying decline in international trade volumes was even sharper, and almost twice as big. Globally, industrial production fell 12%, and trade volumes fell 20% in the twelve months from April 2008 – shocks of a magnitude not witnessed since the 1930s (Eichengreen and O’Rourke 2010). In addition, the decline was remarkably synchronised across countries.
This paper documents the behaviour of trade prices during the Great Trade Collapse of 2008-2009 using transaction-level data from the US Bureau of Labor Statistics. The authors' findings present a challenge for theories of the trade collapse based on cost shocks specific to traded goods that work through prices.
Gita Gopinath, Oleg Itskhoki, Brent Neiman28 July 2012
The sharp decline in trade values during the recent global recession has captured the attention of both policymakers and academics. This column presents recent research sowing that, within differentiated sectors, the great collapse was one of trade quantities and not one of trade prices.
One of the most unique and concerning features of the recent global recession was the sharp collapse in trade values (see Baldwin 2009). Researchers subsequently provided myriad hypotheses for the drivers of this disproportionate decline in trade relative to output and value added.1 Many immediately concluded that a large price decline must be part of the collapse. And, indeed, for some categories of goods this was in fact the case. Levchenko et al.
Estimating trade elasticities: Demand composition and the trade collapse of 2008–09
Matthieu Bussière, Fabio Ghironi, Giulia Sestieri14 February 2012
At the height of the 2008–09 financial crisis, global trade fell by far more than global output – a pattern that defied past experience and became known as the Great Trade Collapse. This column uses a new model for analysis to argue that the collapse was caused mainly by the crash in global demand.
South Korea’s temporary trade barriers before and during the crisis
Moonsung Kang, Soonchan Park04 September 2011
How have South Korean trade flows responded to the financial crisis of 2008-09? This column, part of a collection of four columns on trade responses to the crisis, finds that although relatively few antidumping duties were initiated, the Korea Trade Commission was more active in imposing these duties.
During the global crisis there was a severe decline in trade known as the Great Trade Collapse (Baldwin 2009). As described by the OECD (2010) and WTO (2010), in 2009 world merchandise exports fell by 12% while world GDP fell by 2.5%. South Korea (hereafter, Korea) was no exception. In 2009, its exports fell by 13.9% while imports dropped by 25.8%.
International trade flat-lined in the immediate aftermath of the global crisis, and many practitioners suggested that trade finance played an important role. Yet research has lagged behind policymaking, largely due to a lack of data detailing the financing of international transactions. This columns explores a US poultry exporter's trade-finance practices to pluck out some policy recommendations.
During the recent economic crisis, several practitioners claimed that financial constraints contributed to the large decline in global trade flows relative to gross domestic product. Some evidence collected in a survey conducted by the International Chamber of Commerce and in a survey conducted by the IMF and the Banker’s Association for Finance and Trade supported their claims. Policymakers responded with a variety of measures to increase the available of capital for importers and exporters.
Daniel Paravisini, Veronica E Rappoport, Philipp Schnabl, Daniel Wolfenzon27 July 2011
On the back of the global crisis came the global trade collapse, as international trade fell 15% between 2008 and 2009. Was this a result of credit lines being cut or did demand simply disappear? This column uses Peruvian export data to argue that bank credit played a smaller role than suggested by previous estimates.
One of the most striking aspects of the Great Recession was the Great Trade Collapse. According to the IMF Global Data Source, between the first quarter of 2008 and the first quarter of 2009 international trade fell by 15%, while real world GDP fell by 3.7%.
Uri Dadush, Shimelse Ali, Rachel Esplin Odell07 June 2011
The limited resort to protectionism during the financial crisis is often attributed to the WTO or to sensible macroeconomic policy. This column argues that there is more to the story. The combination of national laws, regional agreements, and powerful interest groups has worked to stop protectionism in its tracks.
Though countries enacted hundreds of protectionist measures during the global financial crisis, only a small part of world trade has been affected – just 0.8% between October 2008 and October 2009 (WTO 2011). Even the most frequent targets of trade-discriminatory measures – such as China – and perpetrators – such as India – saw export and import trends change little during the crisis.1 Moreover, the impact appears to have subsided quickly.