Abstract
Tepid trade growth since the 2008/2009 global financial crisis (GFC) has been partly attributed to sluggish demand from developed countries. However, data reveals that developing countries play a bigger role in holding back trade growth, while developed countries show quite robust import growth. Post-GFC, the exchange rate volatility has grown significantly. As decomposition of country groups by changes in currency valuation shows, however, local currency depreciation is not contributing to export growth as much as conventional wisdom dictates. On the other hand, countries with appreciating currencies show rising import intensity and significant export growth. This implies that the more countries undergo currency devaluation — the deeper the degree of devaluation and even competitive devaluations — the more likely international trade will grow slower.
Highlights
After a short period of quick recovery following the 2008/2009 global financial crisis (GFC), there have been protracted periods of slumping world trade growth
Since the GFC, global trade volume growth averaged behind the global gross domestic product (GDP) growth (World Economic Outlook 2015, International Monetary Fund; International Trade Statistics 2015, World Trade Organization)
This paper examines whether structural changes have occurred in trade growth pattern pre- and post-GFC; and to what extent it can be explained by currency movements
Summary
After a short period of quick recovery following the 2008/2009 global financial crisis (GFC), there have been protracted periods of slumping world trade growth. While much literature shows the significant impact in level and volatility of the exchange rate on trade, myriad research points to some ambiguous or counterintuitive results when it comes to the impact on real rather than nominal trade. Against this background, this paper examines whether structural changes have occurred in trade growth pattern pre- and post-GFC; and to what extent it can be explained by currency movements.
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