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The Great Trade Collapse

  • Rudolfs Bems

    (International Monetary Fund, Washington, DC 20431)

  • Robert C. Johnson

    (Department of Economics, Dartmouth College, Hanover, New Hampshire 03755
    National Bureau of Economic Research, Cambridge, Massachusetts 02138)

  • Kei-Mu Yi

    ()

    (Federal Reserve Bank of Minneapolis, Minneapolis, Minnesota 55401)

We survey recent literature on the causes of the collapse in international trade during the 2008–2009 global recession. We argue that the evidence points to the collapse in aggregate expenditure, concentrated on trade-intensive durable goods, as the main driver of the trade collapse. Inventory adjustment likely amplified the impact of these expenditure changes on trade. In addition, shocks to credit supply constrained export supply, further exacerbating the decline in trade. Most evidence suggests that changes in trade policy did not play a large role. We conclude that one benefit of the trade collapse is that it has stimulated research in neglected areas at the intersection of trade and macroeconomics.

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Article provided by Annual Reviews in its journal Annual Review of Economics.

Volume (Year): 5 (2013)
Issue (Month): 1 (05)
Pages: 375-400

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Handle: RePEc:anr:reveco:v:5:y:2013:p:375-400
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