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Economic Crisis and Global Supply Chains

Author

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  • Agnès Bénassy-Quéré
  • Yvan Decreux
  • Lionel Fontagné
  • David Khoudour-Castéras

Abstract

Much attention has been paid to the sharp fall in world trade associated with the economic crisis during the last quarter of 2008 and the first quarter of 2009. Alarming forecasts have been published for the whole year of 2009 and several explanations have been offered. In particular, beyond the credit crunch and the global drop in demand, it has been argued that, due to globalisation and the fragmentation of supply chains, world trade will inevitably overshoot the shock in world GDP. We contest this view using both simple accounting calculations and a simulation of the multi-region, multi-sector Computable General Equilibrium (CGE) model, which explicitly models input-output relations within and between sectors. Using the CGE MIRAGE, we ask whether the most recent forecasts of GDP change, together with a twist in the composition of demand (to the detriment of capital goods), a halt in the trend towards the reduction in trade costs and a collapse in the oil price can replicate a very similar multiplier effect on world trade to that currently being experienced. Firstly, we find that, when trade flows are deflated by the price of the world GDP, the order of magnitude for trade decline in 2009 is 8.9 percent in our exercise. However, when trade flows are deflated by the sector-specific trade prices computed by the model, the drop in world trade is much more limited (-2.4 percent). Hence a large part of the fall in trade predicted by the model comes from a relative price effect. Secondly, while this fall is still more than the –1.3% drop in world GDP forecast by the IMF in April 2009, even this magnification effect disappears when GDPs are aggregated using current exchange rates, which is the appropriate reference, rather than PPP weights. Thirdly, while, our paper does not support the hypothesis of a systematic over-shooting of trade due to globalisation and the fragmentation of supply chains, it seems likely that additional factors such as the credit shortage must have played a role in the short run to explain the sharp fall in world trade.

Suggested Citation

  • Agnès Bénassy-Quéré & Yvan Decreux & Lionel Fontagné & David Khoudour-Castéras, 2009. "Economic Crisis and Global Supply Chains," Working Papers 2009-15, CEPII research center.
  • Handle: RePEc:cii:cepidt:2009-15
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    References listed on IDEAS

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    1. Dirk WILLENBOCKEL & Sherman ROBINSON, "undated". "The Global Financial Crisis, LDC Exports and Welfare: Analysis with a World Trade Model," EcoMod2009 21500091, EcoMod.
    2. Sébastien Miroudot & Alexandros Ragoussis, 2009. "Vertical Trade, Trade Costs and FDI," OECD Trade Policy Papers 89, OECD Publishing.
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    Cited by:

    1. Kristian Behrens & Gregory Corcos & Giordano Mion, 2013. "Trade Crisis? What Trade Crisis?," The Review of Economics and Statistics, MIT Press, vol. 95(2), pages 702-709, May.
    2. Domit, Silvia & Shakir, Tamarah, 2010. "Interpreting the world trade collapse," Bank of England Quarterly Bulletin, Bank of England, vol. 50(3), pages 183-189.
    3. Escaith, Hubert, 2009. "Trade Collapse, Trade Relapse and Global Production Networks: Supply Chains in the Great Recession," MPRA Paper 18274, University Library of Munich, Germany.
    4. Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2010. "Exports and sectoral financial dependence: evidence on French firms during the great global crisis," Working Paper Series 1227, European Central Bank.
    5. Anderton, Robert & Tewolde, Tadios, 2011. "The global financial crisis: trying to understand the global trade downturn and recovery," Working Paper Series 1370, European Central Bank.
    6. repec:ebd:wpaper:149 is not listed on IDEAS
    7. Rahel Aichele & Inga Heiland, 2016. "Where is the Value Added? Trade Liberalization and Production Networks," CESifo Working Paper Series 6026, CESifo Group Munich.
    8. Escaith, Hubert & Lindenberg, Nannette & Miroudot, Sébastien, 2010. "International supply chains and trade elasticity in times of global crisis," WTO Staff Working Papers ERSD-2010-08, World Trade Organization (WTO), Economic Research and Statistics Division.
    9. Taglioni, Daria & Zavacka, Veronika, 2012. "Innocent bystanders : how foreign uncertainty shocks harm exporters," Policy Research Working Paper Series 6226, The World Bank.
    10. Agnès Bénassy-Quéré & Benoît Coeuré & Pierre Jacquet & Jean Pisani-Ferry, 2009. "The Crisis: Policy Lessons and Policy Challenges," Working Papers 358, Bruegel.
    11. Roberto Álvarez & Camila Sáez, 2015. "Post-Crisis Financiera y Expansión de las Exportaciones: Micro-Evidencia para Chile," Working Papers Central Bank of Chile 748, Central Bank of Chile.
    12. Hertel, Thomas, 2013. "Global Applied General Equilibrium Analysis Using the Global Trade Analysis Project Framework," Handbook of Computable General Equilibrium Modeling, Elsevier.
    13. Aichele, Rahel & Heiland, Inga, 2014. "Where is the value added? China's WTO entry, trade and value chains," Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100424, Verein für Socialpolitik / German Economic Association.
    14. Bricongne, Jean-Charles & Fontagné, Lionel & Gaulier, Guillaume & Taglioni, Daria & Vicard, Vincent, 2012. "Firms and the global crisis: French exports in the turmoil," Journal of International Economics, Elsevier, vol. 87(1), pages 134-146.
    15. ITO Yukiko, 2017. "Has the Offshore Service Network Been Expanded by Japanese Firms?," Discussion papers 17107, Research Institute of Economy, Trade and Industry (RIETI).
    16. van Bergeijk, P.A.G., 2011. "One is not enough!," ISS Working Papers - General Series 22964, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    17. Rudolfs Bems & Robert C Johnson & Kei-Mu Yi, 2010. "Demand Spillovers and the Collapse of Trade in the Global Recession," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 58(2), pages 295-326, December.
    18. Escaith, Hubert, 2009. "Trade Collapse, Trade Relapse and Global Production Networks: Supply Chains in the Great Recession (revised)," MPRA Paper 31864, University Library of Munich, Germany, revised Jun 2011.
    19. van Bergeijk, P.A.G., 2017. "One is not enough! An economic history perspective on world trade collapses and deglobalization," ISS Working Papers - General Series 98695, International Institute of Social Studies of Erasmus University Rotterdam (ISS), The Hague.
    20. Matthieu Bussière & Giovanni Callegari & Fabio Ghironi & Giulia Sestieri & Norihiko Yamano, 2013. "Estimating Trade Elasticities: Demand Composition and the Trade Collapse of 2008-2009," American Economic Journal: Macroeconomics, American Economic Association, vol. 5(3), pages 118-151, July.
    21. repec:ebd:wpaper:148 is not listed on IDEAS

    More about this item

    Keywords

    INTERNATIONAL TRADE; CRISIS; CGEM; global supply chains; GLOBAL CRISIS;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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