Measuring Exposure and Vulnerability to International Trade Shocks

This work discusses simple frameworks for measuring a country's exposure and vulnerability to international trade shocks at the sector and product levels based on widely available data. Exposure refers to measuring reliance, at the country or sector level, on purchases or sales abroad, and vulnerability assesses the risks associated with exposure. The paper argues that traditional measures of trade openness, such as trade over gross domestic product, which measure participation in international trade and exposure to it, fail to capture the true extent of a country's reliance on international markets and do not allow for more granular insights at the sectoral level. A set of indicators based on multi-region input-output data and disaggregated trade data is proposed to address these shortcomings. Multi-region input-output–based indicators highlight the need to consider both drivers of supply and demand through participation into global value chains and resulting indirect trade linkages as important dimensions of exposure to global trade. Whether exposure to international markets leads to vulnerabilities is captured by identifying risk features of participation in international trade. Vulnerability will arise when foreign sourcing (imports) and foreign demand (exports) cannot be easily substituted to mitigate shocks on international markets. When assessing risks of disruption to international trade flows, this work proposes to combine three dimensions related to trade concentration, its volatility, and logistics complexity, highlighting both the risks associated with overreliance on specific and volatile trade partners and products in the absence of easy substitutes, as well as inherent risks associated with international logistics supply chains.