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Demand Spillovers and the Collapse of Trade in the Global Recession

  • Kei-Mu Yi
  • Rudolfs Bems
  • Robert C. Johnson

This paper uses a global input-output framework to quantify US and EU demand spillovers and the elasticity of world trade to GDP during the global recession of 2008-2009. We find that 20-30 percent of the decline in the US and EU demand was borne by foreign countries, with NAFTA, Emerging Europe, and Asia hit hardest. Allowing demand to change in all countries simultaneously, our framework delivers an elasticity of world trade to GDP of nearly 3. Thus, demand alone can account for 70 percent of the trade collapse. Large changes in demand for durables play an important role in driving these results.

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Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/142.

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Length: 45
Date of creation: 01 Jun 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/142
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  1. Julian di Giovanni & Andrei A. Levchenko, 2008. "Putting the Parts Together: Trade, Vertical Linkages, and Business Cycle Comovement," Working Papers 580, Research Seminar in International Economics, University of Michigan.
  2. Eaton, Jonathan & Kortum, Sam & Neiman, Brent & Romalis, John, 2013. "Trade and the Global Recession," Working Papers 2013-21, University of Sydney, School of Economics.
  3. Amador, João & Cabral, Sónia, 2008. "Vertical specialization across the world: a relative measure," MPRA Paper 9618, University Library of Munich, Germany.
  4. 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.
  5. Andrei A. Levchenko & Logan T. Lewis & Linda L. Tesar, 2010. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," NBER Working Papers 16006, National Bureau of Economic Research, Inc.
  6. Mary Amiti & David E. Weinstein, 2011. "Exports and Financial Shocks," The Quarterly Journal of Economics, Oxford University Press, vol. 126(4), pages 1841-1877.
  7. Jian Wang, 2010. "Durable goods and the collapse of global trade," Economic Letter, Federal Reserve Bank of Dallas, vol. 5(feb).
  8. Johnson, Robert C. & Noguera, Guillermo, 2012. "Accounting for intermediates: Production sharing and trade in value added," Journal of International Economics, Elsevier, vol. 86(2), pages 224-236.
  9. Rudolfs Bems, 2008. "Aggregate Investment Expenditures on Tradable and Nontradable Goods," IMF Working Papers 08/45, International Monetary Fund.
  10. Guillaume Daudin & Christine Rifflart & Danielle Schweisguth, 2009. "Who produces for whom in the world economy?," Sciences Po publications 2009-18, Sciences Po.
  11. Iacovone, Leonardo & Zavacka, Veronika, 2009. "Banking crises and exports : lessons from the past," Policy Research Working Paper Series 5016, The World Bank.
  12. 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.
  13. Agnès Bénassy-Quéré & Yvan Decreux & Lionel Fontagné & David Khoudour-Castéras, 2009. "Economic Crisis and Global Supply Chains," Working Papers 2009-15, CEPII research center.
  14. 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.
  15. Irwin, Douglas A., 2002. "Long-run trends in world trade and income," World Trade Review, Cambridge University Press, vol. 1(01), pages 89-100, March.
  16. Calista Cheung & Stéphanie Guichard, 2009. "Understanding the World Trade Collapse," OECD Economics Department Working Papers 729, OECD Publishing.
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