The Global Trade Slowdown: Cyclical or Structural?

45 Pages Posted: 23 Feb 2015

See all articles by Cristina Constantinescu

Cristina Constantinescu

International Monetary Fund (IMF)

Aaditya Mattoo

World Bank - Development Research Group (DECRG)

Michele Ruta

Economic Research Division, WTO; Columbia Business School - Economics Department; International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: January 2015

Abstract

This paper focuses on the sluggish growth of world trade relative to income growth in recent years. The analysis uses an empirical strategy based on an error correction model to assess whether the global trade slowdown is structural or cyclical. An estimate of the relationship between trade and income in the past four decades reveals that the long-term trade elasticity rose sharply in the 1990s, but declined significantly in the 2000s even before the global financial crisis. These results suggest that trade is growing slowly not only because of slow growth of Gross Domestic Product (GDP), but also because of a structural change in the trade-GDP relationship in recent years. The available evidence suggests that the explanation may lie in the slowing pace of international vertical specialization rather than increasing protection or the changing composition of trade and GDP.

Keywords: International trade, Income, Gross domestic product, Demand, Global Trade Slowdown, Trade Elasticity, gdp, recession, value, goods, protectionism, investment, aggregate demand, value added, exports, projections, real gdp, economic outlook, consumption, financial crisis, equilibrium, wto, variables, growth rate, trade barriers, structural change, financial crises, benchmark, inputs, industrialization, regression analysis, debt, trade policies, wages, forecasts, export growth, central bank, inventory, statistical analysis, trends, elasticity of substitution, business cycles, exchange rates, income elasticity of demand, national income, trade liberalization, credit, endogenous variables

JEL Classification: F14, F40

Suggested Citation

Constantinescu, Cristina and Mattoo, Aaditya and Ruta, Michele, The Global Trade Slowdown: Cyclical or Structural? (January 2015). IMF Working Paper No. 15/6. Available at SSRN: https://ssrn.com/abstract=2568599

Cristina Constantinescu (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Aaditya Mattoo

World Bank - Development Research Group (DECRG) ( email )

1818 H Street, N.W.
Room MC 3-327
Washington, DC 20433
United States
202-458-8047 (Phone)
202-676-9810 (Fax)

HOME PAGE: http://econ.worldbank.org/staff/amattoo

Michele Ruta

Economic Research Division, WTO ( email )

Rue de Lausanne 154
CH-1211 Geneva
Switzerland

HOME PAGE: http://www.iue.it/Personal/Fellows/MicheleRuta/Welcome.htm

Columbia Business School - Economics Department ( email )

420 West 118th Street
New York, NY 10027
United States

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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