On the gravity of world trade’s slowdown
The global trade slowdown : a new normal?
As time elapses, it is becoming increasingly clear that the trend in world trade growth is below what it used to be before the 2008-2009 Global Crisis. The shaky trade outcomes resulting from the Crisis, with a deep fall in 2009 and a subsequent rebound, do not make it easy to characterise any underlying structural trend. Still, yearly rates of growth in volume in the order of magnitude of 2% to 3%, as consistently observed for world trade since 2012, are in stark contrast to the 7.7% average growth registered over the period 2002-2007. Even the recent slow pace of GDP growth falls short of explaining this trend. While the volume of world trade frequently grew twice as fast as world GDP before the Crisis, its growth has been comparable, and often lower, in the recent period.
Macroeconomic approaches have been favoured so far in analysing these recent trends, which seems logical given the questions surrounding the cyclical nature of observed outcomes. Yet, trade flows are set at the product level, between pairs of countries. Accordingly, a disaggregated analysis may be helpful to better understand the extent to which these outcomes are in line with structural determinants, whether specific patterns emerged across partners and sectors, and whether significant composition effects were at play.
Since the development of global value chains (GVCs) was a defining feature of the rapid development of world trade before the Crisis, it is also natural to wonder whether this phenomenon may be part of the explanation, as already hinted at by Ferrantino and Taglioni (2014) and Constantinescu et al. (2014). Both analyses show that the rise of GVCs, which had driven the growth of world trade during the 1990s and the 2000s, has stopped playing this role since the 2008-2009 Crisis. However, such country-level trade analyses may be blurred by composition effects, especially in a period when countries' export capacities and import demands have experienced contrasting changes. In what follows, we focus instead on bilateral trade flows at the sector level. A gravity equation is used to provide a benchmark for bilateral trade relationships and their sector-level behaviour in response to specific shocks. Deviations from this benchmark are then used to interpret the recent slowdown, including the possible role played by GVC participation. Before putting this methodology into practice, we first glance at empirical evidence on the recent trade slowdown, in relation to GVC participation.
Copyright © CEPR Press, 2015
Crozet, M., Emlinger, C., & Jean, S. (2015). On the gravity of world trade’s slowdown. In B. Hoekman (Ed.), The global trade slowdown: A new normal? (pp. 179-196). London: CEPR Press.