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Trade and the Global Recession

  • Samuel S. Kortum
  • Jonathan Eaton
  • Brent Neiman
  • John Romalis

The ratio of global trade to GDP declined by nearly 30 percent during the global recession of 2008-2009. This large drop in international trade has generated significant attention and concern. Did the decline simply reflect the severity of the recession for traded goods industries? Or alternatively, did international trade shrink due to factors unique to cross border transactions? This paper merges an input-output framework with a gravity trade model and solves numerically several general equilibrium counterfactual scenarios which quantify the relative importance for the decline in trade of the changing composition of global GDP and changes in trade frictions. Our results suggest that the relative decline in demand for manufactures was the most important driver of the decline in manufacturing trade. Changes in demand for durable manufactures alone accounted for 65 percent of the cross-country variation in changes in manufacturing trade/GDP. The decline in total manufacturing demand (durables and non-durables) accounted for more than 80 percent of the global decline in trade/GDP. Trade frictions increased and played an important role in reducing trade in some countries, notably China and Japan, but decreased or remained relatively flat in others. Globally, the impact of these changes in trade frictions largely cancel each other out.

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File URL: http://degit.sam.sdu.dk/papers/degit_15/c015_002.pdf
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Paper provided by DEGIT, Dynamics, Economic Growth, and International Trade in its series DEGIT Conference Papers with number c015_002.

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Length: 68 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:deg:conpap:c015_002
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  1. Charles Engel & Jian Wang, 2008. "International Trade in Durable Goods: Understanding Volatility, Cyclicality, and Elasticities," NBER Working Papers 13814, National Bureau of Economic Research, Inc.
  2. Trevor Tombe, 2012. "The Missing Food Problem," Working Papers tt0060, Wilfrid Laurier University, Department of Economics, revised 2012.
  3. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
  4. Fernandez, Roque B, 1981. "A Methodological Note on the Estimation of Time Series," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 471-76, August.
  5. Milton Friedman, 1962. "Introduction to "The Interpolation of Time Series by Related Series"," NBER Chapters, in: The Interpolation of Time Series by Related Series, pages 1-3 National Bureau of Economic Research, Inc.
  6. George Alessandria & Joseph Kaboski & Virgiliu Midrigan, 2008. "Inventories, Lumpy Trade, and Large Devaluations," NBER Working Papers 13790, National Bureau of Economic Research, Inc.
  7. Shikher, Serge, 2011. "Capital, technology, and specialization in the neoclassical model," Journal of International Economics, Elsevier, vol. 83(2), pages 229-242, March.
  8. Samuel S. Kortum & Jonathan Eaton & Brent Neiman & John Romalis, 2010. "Trade and the Global Recession," DEGIT Conference Papers c015_002, DEGIT, Dynamics, Economic Growth, and International Trade.
  9. Fernando Alvarez & Robert E. Lucas, 2005. "General Equilibrium Analysis of the Eaton-Kortum Model of International Trade," NBER Working Papers 11764, National Bureau of Economic Research, Inc.
  10. Virgiliu Midrigan & Joseph Kaboski & George Alessandria, 2010. "The Great Trade Collapse of 2008-09: An Inventory Adjustment?," 2010 Meeting Papers 107, Society for Economic Dynamics.
  11. Nicolas Berman and Philippe Martin, 2010. "The Vulnerability Of Sub-Saharan Africa To The Financial Crisis: The Case Of Trade," RSCAS Working Papers 2010/15, European University Institute.
  12. Lorenzo Caliendo & Fernando Parro, 2012. "Estimates of the Trade and Welfare Effects of NAFTA," NBER Working Papers 18508, National Bureau of Economic Research, Inc.
  13. The University of Iowa & Michael Waugh, 2008. "Bilateral Trade, Relative Prices, and Trade Costs," 2008 Meeting Papers 781, Society for Economic Dynamics.
  14. Smits, J.-P. & Woltjer, P. & Ma, D., 2009. "A Dataset on Comparative Historical National Accounts, ca.1870-1950: A Time-Series Perspective," GGDC Research Memorandum GD-107, Groningen Growth and Development Centre, University of Groningen.
  15. 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.
  16. Chow, Gregory C & Lin, An-loh, 1971. "Best Linear Unbiased Interpolation, Distribution, and Extrapolation of Time Series by Related Series," The Review of Economics and Statistics, MIT Press, vol. 53(4), pages 372-75, November.
  17. Charles Engel & Jian Wang, 2007. "International trade in durable goods: understanding volatility, cyclicality, and elastics," Globalization and Monetary Policy Institute Working Paper 03, Federal Reserve Bank of Dallas.
  18. Jonathan Eaton & Samuel Kortum & Brent Neiman, 2013. "On Deficits and Unemployment," Revue économique, Presses de Sciences-Po, vol. 64(3), pages 405-420.
  19. repec:cas:wpaper:cas_rn_2007_7 is not listed on IDEAS
  20. Milton Friedman, 1962. "The Interpolation of Time Series by Related Series," NBER Books, National Bureau of Economic Research, Inc, number frie62-1, December.
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