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The Global Trade Slowdown; Cyclical or Structural?

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  • Cristina Constantinescu
  • Aaditya Mattoo
  • Michele Ruta

Abstract

This paper focuses on the sluggish growth of world trade relative to income growth in recent years. The analysis uses an empirical strategy based on an error correction model to assess whether the global trade slowdown is structural or cyclical. An estimate of the relationship between trade and income in the past four decades reveals that the long-term trade elasticity rose sharply in the 1990s, but declined significantly in the 2000s even before the global financial crisis. These results suggest that trade is growing slowly not only because of slow growth of Gross Domestic Product (GDP), but also because of a structural change in the trade-GDP relationship in recent years. The available evidence suggests that the explanation may lie in the slowing pace of international vertical specialization rather than increasing protection or the changing composition of trade and GDP.

Suggested Citation

  • Cristina Constantinescu & Aaditya Mattoo & Michele Ruta, 2015. "The Global Trade Slowdown; Cyclical or Structural?," IMF Working Papers 15/6, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:15/6
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    References listed on IDEAS

    as
    1. Andrei A. Levchenko & Logan Lewis & Linda L. Tesar, 2009. "The Collapse of International Trade During the 2008-2009 Crisis: In Search of the Smoking Gun," Working Papers 592, Research Seminar in International Economics, University of Michigan.
    2. Bown, Chad P. & Crowley, Meredith A., 2013. "Import protection, business cycles, and exchange rates: Evidence from the Great Recession," Journal of International Economics, Elsevier, vol. 90(1), pages 50-64.
    3. Romain A Duval & Kevin C Cheng & Kum Hwa Oh & Richa Saraf & Dulani Seneviratne, 2014. "Trade Integration and Business Cycle Synchronization; A Reappraisal with Focus on Asia," IMF Working Papers 14/52, International Monetary Fund.
    4. 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.
    5. Richard Baldwin, 2011. "Trade And Industrialisation After Globalisation's 2nd Unbundling: How Building And Joining A Supply Chain Are Different And Why It Matters," NBER Working Papers 17716, National Bureau of Economic Research, Inc.
    6. 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.
    7. Ines Buono & Filippo Vergara Caffarelli, 2013. "Trade elasticity and vertical specialisation," Temi di discussione (Economic working papers) 924, Bank of Italy, Economic Research and International Relations Area.
    8. di Mauro, Filippo & Ottaviano, Gianmarco I.P. & Vicard, Vincent & Altomonte, Carlo & Rungi, Armando, 2012. "Global value chains during the great trade collapse: a bullwhip effect?," Working Paper Series 1412, European Central Bank.
    9. 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.
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    Keywords

    Demand; International trade; Gross domestic product; Income; Global Trade Slowdown; Trade Elasticity; trade; elasticity; gdp; Country and Industry Studies of Trade; General;

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