Is world trade slowing down? New evidence on trade-income elasticity

Amaia Altuzarra,Carlos Rodríguez,Ricardo Bustillo

doi:10.2298/pan190722013a

Abstract

This paper furthers and updates the research on the nature of the so-called global trade slowdown. Not only do we explain and discuss the determinants of this phenomenon, but we also offer an empirical description of the recent evolution of trade and trade elasticity. With the purpose of testing whether this is a structural phenomenon or not, we build an Error Correction Model for both world and regional data on trade and income using data from the World Bank for the period 1970-2017. World, OECD and Asian countries trade elasticity figures show a remarkable reduction after the hyperglobalization period (1986- 2001), opposed to those of Latin America where trade volume has not stagnated so much. This slowdown might have major consequences for any country, but especially for those which have relied more intensively on trade as an engine for growth.

Highlights

Global trade of goods and services had shown a relevant increase during approximately three decades prior to the global financial crisis in 2008, outperforming growth in global output
One important question is whether the Global trade Slowdown is mostly a cyclical downturn, reflecting slow growth in GDP, or whether it is fundamentally reflecting a permanent change towards lower increases in world trade flows
The aim of this paper is to assess whether the global trade slowdown is fundamentally a structural phenomenon or not

Summary

Introduction

Global trade of goods and services had shown a relevant increase during approximately three decades prior to the global financial crisis in 2008, outperforming growth in global output. One important question is whether the Global trade Slowdown is mostly a cyclical downturn, reflecting slow growth in GDP, or whether it is fundamentally reflecting a permanent change towards lower increases in world trade flows (in comparison with GDP). In the latter case, this would imply that the hyperglobalization period (Rodrik, 2011) has come to an end.

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