International trade

Rachel Griffith, Peter Levell, Agnes Norris Keiller, 01 December 2020

On 31 January 2020 the UK formally left the EU after over 40 years of membership. On 31 December, the UK’s transition period will come to an end and the UK and EU will establish a new trading relationship with greater trade frictions. At the time of writing, the terms of this relationship remain unclear. However, since the EU is by far the UK’s largest trading partner, the implications for the UK economy are likely to be profound. This column discusses potential consequences for the labour market – and earnings inequality – in the UK.

Federico Di Pace, Luciana Juvenal, Ivan Petrella, 28 November 2020

The abrupt movements in commodity prices at the onset of the Covid-19 crisis have reignited policymakers’ concerns over movements in the terms of trade. The shock has certainly confirmed that terms of trade are very volatile and extremely sensitive to changes in global economic activity. This column argues that these terms of trade shocks are likely to have a persistent impact on the business cycle of developing economies, which are particularly vulnerable to fluctuations in the price of their exports.  

Bernard Hoekman, Anirudh Shingal, Varun Eknath, Viktoriya Ereshchenko, 25 November 2020

A prominent feature of the public policy response to COVID-19 has been the active use of trade policy instruments to enable access to essential supplies. This column finds the use of export restrictions targeting medical products to be strongly positively correlated with characteristics of prevailing public procurement regimes. Membership of trade agreements encompassing public procurement disciplines is associated with actions to facilitate trade in medical products. These findings suggest that future empirical assessments of trade policy drivers during the pandemic should consider the role of national public procurement systems and deep trade agreements.

Holger Breinlich, Harald Fadinger, Volker Nocke, Nicolas Schutz, 21 November 2020

Much of world trade is dominated by a small number of large firms. Market power becomes problematic for the estimation of gravity equations because many policy interventions also influence market shares and hence prices and the value of trade flows. This column proposes a method to correct the resulting inaccuracies in gravity equation estimation by adjusting trade flows for market power effects by subtracting a correction term that depends on the market share a firm or country has in the market in question. It finds membership in the euro area increases bilateral trade flows by around 48% before correcting for market power, and 58% after correction.

Beata Javorcik, Ben Kett, Katherine Stapleton, Leyla O'Kane, 20 November 2020

The Brexit referendum created the threat of a trade policy reversal on an unprecedented scale, with the potential ‘unravelling’ of decades’ worth of deep integration between the UK and the world's most integrated trading bloc. This column examines how this affected UK labour demand. It finds that UK regions exposed to the threat of future barriers on professional services exports experienced a substantial decline in the posting of online job adverts after the Brexit vote, relative to less exposed regions. A back-of-the-envelope calculation indicates that this resulted in approximately 1.5 million fewer job adverts posted after the vote than might have occurred otherwise. 

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