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Demand Spillovers and the Collapse of Trade in the Global Recession

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Author Info

  • Kei-Mu Yi
  • Rudolfs Bems
  • Robert C. Johnson

Abstract

This paper uses a global input-output framework to quantify US and EU demand spillovers and the elasticity of world trade to GDP during the global recession of 2008-2009. We find that 20-30 percent of the decline in the US and EU demand was borne by foreign countries, with NAFTA, Emerging Europe, and Asia hit hardest. Allowing demand to change in all countries simultaneously, our framework delivers an elasticity of world trade to GDP of nearly 3. Thus, demand alone can account for 70 percent of the trade collapse. Large changes in demand for durables play an important role in driving these results.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/142.

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Length: 45
Date of creation: 01 Jun 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/142

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Related research

Keywords: Economic recession; Global Financial Crisis 2008-2009; Demand elasticity; Gross domestic product; domestic demand; intermediate goods; world trade; goods imports; global trade; elasticity of trade; international trade; trade flows; gross exports; aggregate demand; intermediate imports; bilateral trade; changes in trade; imported intermediates; import demand; imported intermediate; service sector; vertical specialization; services trade; output growth; intermediate inputs; global supply; trade data; bilateral trade data; trade barriers; global trade analysis; world demand; export share; world output; transmission of shocks; domestic output; export shares; trade costs; trade partners; policy barriers; domestic production; trade changes; aggregate trade; increased trade; nontradable goods; imported goods; value of imports; export market; world economy; partial equilibrium; trading partner; trade channels; idiosyncratic shocks; transport costs; political economy; domestic supply; global production; open economies; balance of payments; global output; services sector; aggregate trade flows; open economy; trade patterns; increasing share; imported inputs; trade model; partner countries; transportation services; trade openness;

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References

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  1. Amador, João & Cabral, Sónia, 2008. "Vertical specialization across the world: a relative measure," MPRA Paper 9618, University Library of Munich, Germany.
  2. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, Elsevier, vol. 86(2), pages 224-236.
  3. Engel, Charles & Wang, Jian, 2011. "International trade in durable goods: Understanding volatility, cyclicality, and elasticities," Journal of International Economics, Elsevier, Elsevier, vol. 83(1), pages 37-52, January.
  4. Rudolfs Bems, 2008. "Aggregate Investment Expenditures on Tradable and Nontradable Goods," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(4), pages 852-883, October.
  5. Calista Cheung & Stéphanie Guichard, 2009. "Understanding the World Trade Collapse," OECD Economics Department Working Papers 729, OECD Publishing.
  6. George Alessandria & Joseph P. Kaboski & Virgiliu Midrigan, 2010. "The Great Trade Collapse of 2008-09: An Inventory Adjustment?," NBER Working Papers 16059, National Bureau of Economic Research, Inc.
  7. Guillaume Daudin & Christine Rifflart & Danielle Schweisguth, 2009. "Who produces for whom in the world economy?," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2009-18, Observatoire Francais des Conjonctures Economiques (OFCE).
  8. Irwin, Douglas A., 2002. "Long-run trends in world trade and income," World Trade Review, Cambridge University Press, Cambridge University Press, vol. 1(01), pages 89-100, March.
  9. Jonathan Eaton & Sam Kortum & Brent Neiman & John Romalis, 2010. "Trade and the global recession," Working Paper Research, National Bank of Belgium 196, National Bank of Belgium.
  10. Julian di Giovanni & Andrei A. Levchenko, 2008. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," Working Papers, Research Seminar in International Economics, University of Michigan 580, Research Seminar in International Economics, University of Michigan.
  11. Mary Amiti & David E. Weinstein, 2009. "Exports and Financial Shocks," NBER Working Papers 15556, National Bureau of Economic Research, Inc.
  12. Jian Wang, 2010. "Durable goods and the collapse of global trade," Economic Letter, Federal Reserve Bank of Dallas, Federal Reserve Bank of Dallas, vol. 5(feb).
  13. Andrei A. Levchenko & Logan T. Lewis & Linda L. Tesar, 2010. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," NBER Working Papers 16006, National Bureau of Economic Research, Inc.
  14. Iacovone, Leonardo & Zavacka, Veronika, 2009. "Banking crises and exports : lessons from the past," Policy Research Working Paper Series 5016, The World Bank.
  15. Olivier J. Blanchard & Mitali Das & Hamid Faruqee, 2010. "The Initial Impact of the Crisis on Emerging Market Countries," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 41(1 (Spring), pages 263-323.
  16. Agnès Bénassy-Quéré & Yvan Decreux & Lionel Fontagné & David Khoudour-Castéras, 2009. "Economic Crisis and Global Supply Chains," Working Papers 2009-15, CEPII research center.
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