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The trade response to global downturns : historical evidence

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  • Freund, Caroline

Abstract

The author examines the impact of historical global downturns on trade flows. The results provide insight into why trade has dropped so dramatically in the current crisis, what is likely to happen in the coming years, how global imbalances are affected, and which regions and industries suffer most heavily. The author finds that the elasticity of global trade volumes to real world GDP has increased gradually from around 2 in the 1960s to above 3 now. The author also finds that trade is more responsive to GDP during global downturns than in tranquil times. The results suggest that the overall drop in real trade this year is likely to exceed 15 percent. There is significant variation across industries, with food and beverages the least affected and crude materials and fuels the most affected. On the positive side, trade tends to rebound very rapidly when the outlook brightens. The author also finds evidence that global downturns often lead to persistent improvements in the ratio of the trade balance to GDP in borrower countries.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 5015.

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Date of creation: 01 Aug 2009
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Handle: RePEc:wbk:wbrwps:5015

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Keywords: Economic Theory&Research; Emerging Markets; Free Trade; Trade Policy; Currencies and Exchange Rates;

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References

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  1. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "The Aftermath of Financial Crises," NBER Working Papers 14656, National Bureau of Economic Research, Inc.
  2. Iacovone, Leonardo & Zavacka, Veronika, 2009. "Banking crises and exports : lessons from the past," Policy Research Working Paper Series 5016, The World Bank.
  3. Kwack, Sung Yeung & Ahn, Choong Y. & Lee, Young S. & Yang, Doo Y., 2007. "Consistent estimates of world trade elasticities and an application to the effects of Chinese Yuan (RMB) appreciation," Journal of Asian Economics, Elsevier, Elsevier, vol. 18(2), pages 314-330, April.
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Cited by:
  1. Chor, Davin & Manova, Kalina, 2012. "Off the cliff and back? Credit conditions and international trade during the global financial crisis," Journal of International Economics, Elsevier, Elsevier, vol. 87(1), pages 117-133.
  2. Martin Borowiecki & Bernhard Dachs & Doris Hanzl-Weiss & Steffen Kinkel & Johannes Pöschl & Magdolna Sass & Thomas Christian Schmall & Robert Stehrer & Andrea Szalavetz, 2012. "Global Value Chains and the EU Industry," wiiw Research Reports 383, The Vienna Institute for International Economic Studies, wiiw.
  3. repec:wbk:wbpubs:12097 is not listed on IDEAS
  4. Joseph Francois & Mario Holzner & Olga Pindyuk, 2011. "Austrian Linkages to the European Economy and the Transmission Mechanisms of Economic Crisis," FIW Research Reports series, FIW III-006, FIW.
  5. Behrens, Kristian & Corcos, Gregory & Mion, Giordano, 2010. "Trade Crisis? What Trade Crisis?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7956, C.E.P.R. Discussion Papers.
  6. Morales, Eduardo & Sheu, Gloria & Zahler, Andrés, 2011. "Gravity and extended gravity: estimating a structural model of export entry," MPRA Paper 30311, University Library of Munich, Germany.
  7. World Bank, 2011. "Global Economic Prospects, Volume 2, January 2011 : Navigating Strong Currents," World Bank Publications, The World Bank, number 12102, August.
  8. Escaith, Hubert & Lindenberg, Nannette & Miroudot, Sébastien, 2010. "International Supply Chains and Trade Elasticity in Times of Global Crisis," MPRA Paper 20478, University Library of Munich, Germany.
  9. 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.

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