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Does the Post-Crisis Weakness of Global Trade Solely Reflect Weak Demand?

Author

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  • Patrice Ollivaud

    (OECD)

  • Cyrille Schwellnus

Abstract

Global trade growth over the past few years has appeared extraordinarily weak, even in relation to weak global GDP growth. This paper shows that the apparent breakdown in the relationship between global trade and global GDP growth is largely explained by two factors: an inappropriate measurement of global GDP and extraordinary demand weakness in the euro area. As a measure of demand for traded goods, global GDP at market exchange rates is more appropriate than the conventional purchasing power parity-based measure. Moreover, extraordinary demand weakness in the euro area – which is a particularly trade intensive region – has had a substantial negative effect on intra-euro area trade flows, which are commonly counted towards global trade. When global GDP is measured at market exchange rates and intra-euro area flows are removed from the measure of global trade, econometric estimations suggest that over the past 15 years the long-term elasticity of global trade to GDP has been similar to that of the 1990s. Indeed, the overwhelming part of post-crisis trade weakness can be attributed to weak global demand rather than structural changes, according to the econometric estimations in this paper and supporting evidence on changes in global investment, international production fragmentation and protectionism. La faiblesse du commerce mondiale après la crise reflète-t-elle seulement une faible demande? La croissance du commerce mondial a été particulièrement faible ces dernières années, même relativement à la croissance du PIB mondial. Ce papier montre que cette apparente rupture dans la relation entre croissance du commerce mondial et du PIB mondial est due dans une large mesure à deux facteurs : une mesure inappropriée du PIB mondial et une faiblesse exceptionnelle de la demande dans la zone euro. Pour mesurer la demande en biens échangeables, le PIB mondial agrégé avec des taux de change du marché est plus adapté que la mesure conventionnelle basée sur des conversions en parité de pouvoir d’achat. De plus, la faiblesse exceptionnelle de la demande dans la zone euro (où l’intensité du commerce est particulièrement forte) a eu un effet négatif substantiel sur les flux intra-zones, qui sont habituellement comptabilisés dans le commerce mondial. Une fois que le PIB mondial est agrégé avec des taux de change de marché et que l’on soustrait les flux intra-zone-euro au commerce mondial, les estimations économétriques suggèrent ainsi que sur les 15 dernières années, l’élasticité de long-terme du commerce au PIB mondial a été similaire à celle des années 90. En effet, la faiblesse du commerce mondial après la crise est essentiellement due à une faiblesse de la demande mondiale plutôt qu’à un changement structurel. Cela est montré par les estimations économétriques de ce papier et également confirmé par l’observation des évolutions de l’investissement mondial, de la fragmentation de la production internationale et du protectionnisme.

Suggested Citation

  • Patrice Ollivaud & Cyrille Schwellnus, 2015. "Does the Post-Crisis Weakness of Global Trade Solely Reflect Weak Demand?," OECD Economics Department Working Papers 1216, OECD Publishing.
  • Handle: RePEc:oec:ecoaaa:1216-en
    DOI: 10.1787/5js1qvnff3hk-en
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    References listed on IDEAS

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    1. Hakkio, Craig S. & Rush, Mark, 1991. "Cointegration: how short is the long run?," Journal of International Money and Finance, Elsevier, vol. 10(4), pages 571-581, December.
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    3. Irwin, Douglas A., 2002. "Long-run trends in world trade and income," World Trade Review, Cambridge University Press, vol. 1(1), pages 89-100, March.
    4. Freund, Caroline, 2009. "The trade response to global downturns : historical evidence," Policy Research Working Paper Series 5015, The World Bank.
    5. Gregory, Allan W. & Hansen, Bruce E., 1996. "Residual-based tests for cointegration in models with regime shifts," Journal of Econometrics, Elsevier, vol. 70(1), pages 99-126, January.
    6. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2013. "The Great Trade Collapse," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 375-400, May.
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    8. 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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    Cited by:

    1. Gaulier, Guillaume & Sztulman, Aude & Ünal, Deniz, 2020. "Are global value chains receding? The jury is still out. Key findings from the analysis of deflated world trade in parts and components," International Economics, Elsevier, vol. 161(C), pages 219-236.
    2. Aqib Aslam & Emine Boz & Eugenio Cerutti & Marcos Poplawski-Ribeiro & Petia Topalova, 2018. "The Slowdown in Global Trade: A Symptom of a Weak Recovery?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 66(3), pages 440-479, September.
    3. Roni Frish, 2016. "The Real Exchange Rate in the Long Term," Bank of Israel Working Papers 2016.03, Bank of Israel.
    4. Jaime Martínez-Martín, 2016. "Breaking down world trade elasticities: a panel ECM approach," Working Papers 1614, Banco de España;Working Papers Homepage.
    5. Agnes Ghibuțiu, 2017. "Eu And The Challenges Of Rising Global Protectionism," Romanian Economic Business Review, Romanian-American University, vol. 12(1), pages 7-27, March.

    More about this item

    Keywords

    Commerce mondial; forecasting; prévisions; trade elasticity; élasticité du commerce;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • F10 - International Economics - - Trade - - - General
    • F17 - International Economics - - Trade - - - Trade Forecasting and Simulation

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