Economic Crisis and Global Supply Chains

CEPII Working Paper No. 2009-15

38 Pages Posted: 13 Apr 2010

See all articles by Agnès Bénassy-Quéré

Agnès Bénassy-Quéré

Paris School of Economics (University Paris 1)

Yvan Decreux

CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris

Lionel Gérard Fontagné

Banque de France; CEPII; University of Paris 1 Panthéon Sorbonne; Paris School of Economics

David Khoudour-Castéras

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII); Organization for Economic Co-Operation and Development (OECD) - Development Centre (DEV)

Date Written: July 1, 2009

Abstract

Much attention has been paid to the sharp fall in world trade associated with the economic crisis during the last quarter of 2008 and the first quarter of 2009. Alarming forecasts have been published for the whole year of 2009 and several explanations have been offered. In particular, beyond the credit crunch and the global drop in demand, it has been argued that, due to globalisation and the fragmentation of supply chains, world trade will inevitably overshoot the shock in world GDP. We contest this view using both simple accounting calculations and a simulation of the multi-region, multi-sector Computable General Equilibrium (CGE) model, which explicitly models input-output relations within and between sectors. Using the CGE MIRAGE, we ask whether the most recent forecasts of GDP change, together with a twist in the composition of demand (to the detriment of capital goods), a halt in the trend towards the reduction in trade costs and a collapse in the oil price can replicate a very similar multiplier effect on world trade to that currently being experienced. Firstly, we find that, when trade flows are deflated by the price of the world GDP, the order of magnitude for trade decline in 2009 is 8.9 percent in our exercise. However, when trade flows are deflated by the sector-specific trade prices computed by the model, the drop in world trade is much more limited (-2.4 percent). Hence a large part of the fall in trade predicted by the model comes from a relative price effect. Secondly, while this fall is still more than the –1.3% drop in world GDP forecast by the IMF in April 2009, even this magnification effect disappears when GDPs are aggregated using current exchange rates, which is the appropriate reference, rather than PPP weights. Thirdly, while, our paper does not support the hypothesis of a systematic over-shooting of trade due to globalisation and the fragmentation of supply chains, it seems likely that additional factors such as the credit shortage must have played a role in the short run to explain the sharp fall in world trade.

Keywords: International Trade, Global Crisis, Global Supply Chains, CGE Modeling

JEL Classification: F17, F43

Suggested Citation

Benassy-Quere, Agnes and Decreux, Yvan and Fontagne, Lionel and Khoudour-Castéras, David, Economic Crisis and Global Supply Chains (July 1, 2009). CEPII Working Paper No. 2009-15, Available at SSRN: https://ssrn.com/abstract=1588946 or http://dx.doi.org/10.2139/ssrn.1588946

Agnes Benassy-Quere

Paris School of Economics (University Paris 1) ( email )

106-112 boulevard de l'Hopital
Paris, F-75013
France
+33 1 44 07 82 19 (Phone)

HOME PAGE: http://www.parisschoolofeconomics.com/benassy-quere-agnes/agnesb.html

Yvan Decreux

CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris ( email )

9 Rue Georges Pitard
Paris Cedex 15, F-75015
France

Lionel Fontagne (Contact Author)

Banque de France ( email )

Paris
France

HOME PAGE: http://www.lionel-fontagne.eu/

CEPII ( email )

9 Rue Georges Pitard
Paris, 75015
France
+33 1 53 68 55 06 (Phone)

HOME PAGE: http://lionelfontagne.weebly.com/

University of Paris 1 Panthéon Sorbonne ( email )

Maison des Sciences Economiques
106-112 Bd de l'Hôpital
Paris, 75013
France
+33 1 44 07 89 94 (Phone)
+33 1 53 68 55 01 (Fax)

HOME PAGE: http://lionelfontagne.weebly.com/

Paris School of Economics ( email )

48 Boulevard Jourdan
Paris, 75014 75014
France
+33 1 44 07 89 94 (Phone)

HOME PAGE: http://lionelfontagne.weebly.com/

David Khoudour-Castéras

Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

Organization for Economic Co-Operation and Development (OECD) - Development Centre (DEV) ( email )

94, rue Chardon Lagache
Paris, 75775
France

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