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The global financial crisis: trying to understand the global trade downturn and recovery

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  • Anderton, Robert
  • Tewolde, Tadios

Abstract

This paper aims to shed light on why the downturn in global trade during the intensification of the financial crisis in 2008Q4-2009Q1 was so severe and synchronized across the world, and also examines the subsequent recovery in global trade during 2009Q2-2010Q1. The paper finds that a structural imports function which captures the different and time-varying importintensities of the components of total final expenditure can explain the sharp decline in global imports of goods and services. By contrast, a specification based on aggregate total expenditure can not fully capture the global trade downturn. In particular, panel estimates for a large number of OECD countries suggest that the high import-intensity of exports at the country-level can explain a significant proportion of the decline in world imports during the crisis, while declines in the highly import-intensive expenditure category of investment also contributed to the remaining fall in global trade. At the same time, the high and rising import-intensity of exports also reflects and captures the rapid growth in “vertical specialisation”, suggesting that widespread global production chains may have amplified the downturn in world trade and partly explains its high-degree of synchronisation across the globe. In addition, the estimates find that stockbuilding, business confidence and credit conditions also played a role in the global trade downturn. Meanwhile, the global trade recovery (2009Q2-2010Q1) can only be partially explained by differential elasticities for the components of demand (although the results confirm that the upturn in OECD imports was also driven by strong export growth and the associated reactivation of global production chains, as well as the recovery in stockbuilding and the fiscal stimulus). This may be due in part to the many policy measures that were implemented to boost global trade at that time and which can not be captured by the specification. JEL Classification: E0, F01, F10, F15, F17

Suggested Citation

  • 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.
    • Handle: RePEc:ecb:ecbwps:20111370
    Note: 339014
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    Cited by:

    1. W. Jos Jansen & Ad C. J. Stokman, 2014. "International business cycle co-movement: the role of FDI," Applied Economics, Taylor & Francis Journals, vol. 46(4), pages 383-393, February.
    2. Wagner, Joachim, 2012. "The Microstructure of the Great Export Collapse in German Manufacturing Industries, 2008/2009," IZA Discussion Papers 6393, Institute of Labor Economics (IZA).
    3. repec:ecr:col016:40117 is not listed on IDEAS
    4. Salvador Gil-Pareja & Rafael Llorca-Vivero & José Antonio Martínez-Serrano, 2017. "Does the Degree of Development Matter in the Impact of Banking Crises on International Trade?," Review of Development Economics, Wiley Blackwell, vol. 21(3), pages 829-848, August.
    5. Chen, Liming & Zhao, Yuanyuan & Xie, Rui & Su, Bin & Liu, Yue & Renfei, Xv, 2023. "Embodied energy intensity of global high energy consumption industries: A case study of the construction industry," Energy, Elsevier, vol. 277(C).
    6. Jos Jansen & Ad Stokman, 2011. "International Business Cycle Comovement: Trade and Foreign Direct Investment," DNB Working Papers 319, Netherlands Central Bank, Research Department.
    7. Wagner, Joachim, 2013. "The granular nature of the great export collapse in German manufacturing industries, 2008/2009," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 7, pages 1-21.
    8. Christian Henn & Brad McDonald, 2014. "Crisis Protectionism: The Observed Trade Impact," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 62(1), pages 77-118, April.
    9. Jensen Camilla & Rastenienė Aušrytė, 2016. "Lithuanian Exporters in the Financial Crisis," Ekonomika (Economics), Sciendo, vol. 95(2), pages 118-138, February.
    10. Styliani Christodoulopoulou & Olegs Tkacevs, 2014. "Measuring the Effectiveness of Cost and Price Competitiveness in External Rebalancing of Euro Area Countries: What Do Alternative HCIs Tell Us?," Working Papers 2014/06, Latvijas Banka.
    11. Pahl, Stefan & Brandi, Clara & Schwab, Jakob & Stender, Frederik, 2020. "Cling together, swing together: The contagious effects of COVID-19 on developing countries through global value chains," IDOS Discussion Papers 21/2020, German Institute of Development and Sustainability (IDOS).
    12. Pesliakaite, Jurgita, 2015. "The Impact of GDP Structure on the Stability of Okun's Law in Lithuania," MPRA Paper 69190, University Library of Munich, Germany.
    13. Anderton, Robert & Aranki, Ted & Bonthuis, Boele & Jarvis, Valerie, 2014. "Disaggregating Okun's law: decomposing the impact of the expenditure components of GDP on euro area unemployment," Working Paper Series 1747, European Central Bank.
    14. -, 2016. "Horizons 2030: Equality at the centre of sustainable development. Summary," Documentos de posición del período de sesiones de la Comisión 40117, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    15. Syed Zwick, Hélène & Syed, Sarfaraz Ali Shah & Liddle, Brantley & Lung, Sidney, 2017. "Disaggregated relationship between economic growth and energy use in OECD countries: Time-series and cross-country evidence," MPRA Paper 93271, University Library of Munich, Germany.
    16. Stefan Pahl & Clara Brandi & Jakob Schwab & Frederik Stender, 2022. "Cling together, swing together: The contagious effects of COVID‐19 on developing countries through global value chains," The World Economy, Wiley Blackwell, vol. 45(2), pages 539-560, February.
    17. Jannsen, Nils, 2014. "Zur Schwäche des Welthandels," Kiel Insight 2014.7, Kiel Institute for the World Economy (IfW Kiel).

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    More about this item

    Keywords

    financial crisis; forecasting; globalisation; global trade downturn and recovery; import-intensity of components of total final expenditure; synchronisation; timevarying parameters; vertical specialisation;
    All these keywords.

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • F01 - International Economics - - General - - - Global Outlook
    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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