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Trade and the Global Recession

  • Eaton, Jonathan
  • Kortum, Sam
  • Neiman, Brent
  • Romalis, John

Global trade fell 20 percent relative to world GDP during the global recession of 2008-2009. We develop a dynamic multi-country general equilibrium model of international trade to investigate the sources of this collapse. Our framework provides a complete accounting for what happened to individual countries' manufacturing trade and production, as well as their relative GDP's, over the period, in terms of different sets of shocks hitting the world economy. We find that declines in the perceived future value of stocks of manufactures account for almost all of the collapse in global trade and production. In contrast, changes in relative GDP's are largely the consequence of shocks to intertemporal preferences. For about half of the 22 countries in our analysis the shocks were primarily from abroad rather than domestic. Unlike the period preceding the global recession, in which declining trade barriers explain a significant component of the variation in trade, little of the trade collapse resulted from increased trade barriers.

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Paper provided by University of Sydney, School of Economics in its series Working Papers with number 2013-21.

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Date of creation: May 2013
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Handle: RePEc:syd:wpaper:2013-21
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