Trade Collapse Research Articles

The Great Recession and a Missing Generation of Exporters

The collapse of international trade surrounding the Great Recession has garnered significant attention. This paper studies firm entry and exit in foreign markets and their role in the post-recession recovery of U.S. exports using confidential microdata from the U.S. Census Bureau. We find that incumbent exporters account for the vast majority of the decline in export volumes during the crisis. The recession also induced a missing generation of exporters, with large increases in exits and a substantial decline in entries into foreign markets. New exporters during these years tended to have larger export volumes, however, compensating for the decline in the number of exporting firms. Thus, while entry and exit were important for determining the variety of U.S. goods that were exported, they were less important for the trajectory of aggregate foreign sales.

Trade and the organization of production: Efficiency and labour market outcomes

This chapter presents novel estimates on the numbers and shares of workers in exporting and importing firms of the formal private sector in 132 countries. It shows that the share of workers employed by exporting firms dropped significantly during the trade collapse caused by the global economic crisis and has stagnated ever since. For the same set of countries, the chapter also documents that exporters and importers are more productive and pay higher wages than their non‐trading counterparts. There is, however, a gap between the productivity and the wage premium of exporting and importing firms, indicating that gains from trade are only partially translated into gains for workers. Within exporting firms, heavy exporters tend to have lower labour productivity and pay lower wages than other exporters, while firms that supply inputs into GSCs have higher productivity and pay higher wages than other exporters. Exporters, especially those that form part of GSCs by assembling final goods, employ more women than non‐exporters, but at the same time tend to have higher shares of temporary employment. Importers are found to employ fewer temporary workers.

Cultural multi-level selection and biological market theory explain the coupled dynamics of labor exchange cooperation and social support

Smallholders rely on labor exchange and social support networks; however, little is known about the cooperative dynamics of these interlinked systems. Whereas cultural multi-level selection (CLMS) predicts group membership and changes in the dominant level of selection modulates cooperation, biological market theory (BMT) posits market size fluctuations affect cooperation. We assess these predictions by examining two dimensions of labor exchange, competitive helping and labor reciprocity, and their downstream impacts on social support in a Dominican community between 2007 and 2010. First, we analyze within-community labor organization. Next, we analyze how international regulatory change and the 2008–2009 World Trade Collapse affected local labor organization and its impacts on competitive helping and labor reciprocity. Finally, we show how labor dynamics affected social support. Analyses reveal that (1) village labor initially involved two levels (labor contracting and labor exchange) and the presence of a structured group who maintained higher rates of reciprocal labor relative to non-group members; (2) changes in the international commodities market reduced labor contracting, the size of the labor exchange market, and the dominant level of selection, resulting in less competitive helping, lower rates of reciprocity for group members, and more cliquish social support; and (3) as the global market for bay oil ameliorated, labor organization shifted back to a pre-recession structure, resulting in a larger labor market with more competitive helping and higher rates of reciprocity amongst group members. We highlight the utility of an integrated CMLS and BMT framework for analyzing cooperative dynamics and socio-economic systems sustainability.

Value chains and the great recession: Evidence from Italian and German firms

Global Value Chains (GVCs) were one of the main transmission mechanisms of the 2009 great trade collapse. Our paper describes the effects of the crisis from a country-comparative perspective (Germany and Italy) and at firm level. There are two main conclusions: i) supplier firms were hit by the crisis more than final firms; ii) firms’ position in GVCs and their strategies explain part of the performance gap between Italian and German firms.

Financial Shocks, Supply-Chain Relationships, and the Great Trade Collapse

The collapse in trade relative to GDP during 2008-09 was unusually large historically and puzzling relative to the predictions of canonical two-country models. In a calibrated dynamic general equilibrium two-country model where firms must build supply chain relationships in order to sell their product, we show that a tightening of credit can cause a sizable fall in the trade-GDP ratio (44 percent of the observed value) while productivity shocks cannot. The key mechanism underlying the sharper fall in trade relative to GDP involves an endogenous reallocation of scarce resources from international to domestic supply-chains, that are acquired and maintained at lower cost.

The great trade collapse and the Spanish export miracle: Firm‐level evidence from the crisis

AbstractWe provide novel evidence on the microstructure of international trade during the 2008 financial crisis and subsequent global recession by exploring a rich firm‐level data set from Spain. The focus of our analysis is on changes at the extensive and intensive firm‐level margins of trade, as well as on performance differences (jobs, productivity and firm survival) across firms that differ in their export status. We find no adverse effects of the financial crisis on foreign market entry or exit, but a considerable increase in the export intensity of firms after the financial crisis. Moreover, we find that exporters were more resilient to the crisis than non‐exporters. Finally, while exporters showed a significantly more favourable development of total factor productivity after 2009 than non‐exporters, aggregate productivity declined substantially in a large number of industries in Spanish manufacturing. We also briefly explore two factors that might help explain the surprisingly strong export performance of Spain in the aftermath of the great trade collapse: improved aggregate competitiveness due to internal and external devaluation and a substitutive relationship between domestic and foreign sales at the firm level.

An Evaluation of the Long-term Effects of Export Promotion on Firm Performance

This study evaluates the short and long-term impact of the Spanish program to support starting exporters. It is the first study in this area that includes outcomes from a ten year period, and conducts an evaluation based on both objective indicators and subjective managers’ perceptions. The time period covered includes a full business cycle, thus enabling us to extract some conclusions as to the role of export promotion in helping firms’ endure the economic crisis. Our findings show that the program had a positive impact in participants’ export and economic performance, and that these effects were persistent. We conclude that the design of the program was key to these lasting effects. The program also helped to improve firms’ survival rate and performance during the great trade collapse. Finally, considering its direct costs and benefits, the program appears to be efficient and to pay for itself.

Anatomy of the Trade Collapse, Recovery, and Slowdown: Evidence from Korea

The last decade of the world trade has been marked by an unprecedented collapse, quick recovery, slowdown, another drop, and recovery. To study cyclical and structural aspects of the recent trend of trade, I use both aggregate and disaggregated trade statistics of a small open economy, South Korea, whose economic success and growth have been heavily dependent on exports. The aggregate trend of the country is surprisingly similar to that of the world, which is why the trend of Korea's export is called a proxy for the world. I show that while the last drop of trade after 2015 has cyclical aspects, there is evidence that the continued slowdown from 2012 is structural: (1) the so-called 'China factor' is found in the analysis of trade-income elasticity of the world and China for imports from Korea. (2) The bilateral trade barriers between Korea and its important trading partners are universally tightening. I also show that the firm sizes, destination countries, and the mode of transactions affect disaggregated trade flows during the slowdown periods. It is advisable to diversify main export products to lower the effect of oil prices on export prices and to strengthen the cooperation with ASEAN countries, whose trade barriers have exceptionally diminished throughout the last decade.

The great trade collapse and Indian firms

AbstractThe collapse in global trade during the 2008–09 crisis has been widely studied using the developed nation(s) data. I use firm‐level data from Indian manufacturers to show that: (a) Indian firms experience strong negative demand shocks concerning their exports to the USA and the EU, the effect being significantly higher in case of the USA. Results assert that 1% increase in the exposure towards the crisis‐affected zones (the USA and the EU combined) reduces an average Indian manufacturing firm's export earnings by 1.17%–1.36%; (b) trade in consumer non‐durables and durables are the two most affected sectors, impact being higher for the latter; (c) evidence in support of similar effects throughout the size distribution of firms, with the effect being highest for small or the most vulnerable firms; (d) drop in demand, as a result of the 2008–09 crisis, only affects the high‐exposure industries. My results are robust to IV analysis and a variety of checks.

Regionalisation or Globalisation of Automotive Production Networks? Lessons from Import Patterns of Four European Countries

AbstractThe automotive industry has long had a reputation for organising its production networks on a macro‐regional scale. However, over the 2000–2012 time span, extended vertical disintegration of both carmakers and mega‐suppliers, and the 2008–2009 trade collapse suggest that this geographical organisation pattern could have weakened, giving way to a genuine globalisation of auto‐parts trade. This paper first reviews arguments likely to explain why automotive production networks are multi‐scalar, ranging from local to global. Empirical analysis of international auto‐parts trade data from Germany, France, UK, and Spain suggests that there has been little progression in globalisation of production networks. General data features can be best explained as follows: 1) the auto‐parts import level of a given country is mainly driven by its automobile production level, and by the degree of presence of foreign headquartered carmakers; and 2) the breakdown of imports into procurement flows from near‐distant and far‐distant countries is mainly driven by the degree of presence of carmakers headquartered in far‐distant countries.

China and the great trade collapse: employment effects of falling exports to the EU and US

The paper investigates employment effects of falling exports from China to the EU and US during the great trade collapse of 2008–9. The paper uses fixed multiplier analysis to address employment effects resulting from input-output production linkages between trade and employment as well as from associated changes in household income and expenditures. Main findings are that substantial negative employment effects resulted in China from these linkages; that a large share of these employment effects were income-induced; and that industries in which women workers were disproportionately represented were harder hit through these linkages.

Unpacking services trade during the Great Trade Collapse: time series evidence for the US

This study investigates the apparent resilience of services trade during the 2008–2009 global recession by analyzing the time-series behavior of aggregate US services exports and imports over 1987–2014. It finds evidence of structural instability in the long-run trade equations but little evidence it is coincident with the global recession. It also uncovers a distinct pattern in the income elasticity of business services trade: a large long-run value but a significantly smaller short-run value. Combined with its large weight in total US services trade, the limited short-run demand response of business services trade dampened the effect of the economic downturn on aggregate services trade. Far from being an anomaly, the response of US services trade to the 2008–2009 global recession was consistent with its time-series and compositional characteristics.

Loss Shocks in Export Credit Insurance Markets: Evidence From a Global Insurance Group

AbstractPrivate export credit insurance—covering the risk of nonpayment—plays an important role in facilitating international trade, especially within Europe. Due to lack of data, however, little is known about the influence of loss shocks on export credit insurance markets. This article studies the effect of claims on the availability and premium of export credit insurance, using unique bilateral country‐level data covering worldwide insurance underwriting from 1992 to 2006 by a leading trade credit insurance group. Applying fixed effects models at the country subsidiary level, I find that a doubling of the claims ratio on insured exports between a pair of countries results, on average, in a decline in the subsidiary's share of bilateral exports insured by about 11 percent and rise in premium level by about 4 percent. These claims effects increase when the insurer makes a loss and rise with the size of the loss. Importantly, evidence shows that an extreme loss shock in one market also increases the claims sensitivity of insurance coverage on exports to other markets, suggesting a role for capital constraints. Overall, these results help our understanding of potential trade finance constraints in times of crisis, such as during the 2008–2009 global trade collapse.

Heterogeneous economic resilience and the great recession's world trade collapse

AbstractThis special section aims to fill a gap in the regional resilience literature and to stimulate future spatial studies of resilience to include the international dimension in empirical analyses. It demonstrates the do‐ability and relevance by the natural experience of the global trade collapse that allows us to separate the effect of collapse upon event and ex post recovery because no ex ante resilience measures were taken. This is a great methodological advantage with respect to the literature on natural disasters and financial crises that is confronted with the difficulty of identifying resilience because of ex ante measures (prevention or inherent resilience measures) and ex post measures (recovery or adaptive resilience measures).

Firm Growth in Europe: An Overview Based on the CompNet Labour Module

This paper illustrates the main features of the Labour Module of the CompNet dataset which provides indicators of firm growth over the period 1995-2012 across 17 EU (13 euro area) countries and 9 macro-sectors. It also includes information on a large set of micro-aggregated characteristics of firms growing at different speed such as their financial position and labour and total factor productivity. The paper shows that during the Great Recession the share of shrinking firms sharply increased in countries under stress, while firm growth slowed down in non-stressed countries. In the former, the construction sector suffered the most, while in the latter manufacturing and services related to transportation and storage were mainly affected, possibly as a result of the trade collapse. While we find that, all else equal, more productive firms had a higher probability of growing, the process of productivity-enhancing reallocation was muted during the Great Recession.

Trade, Trade Finance, and Global Liquidity in Asia; Markov-Switching FAVAR Approach

This paper analyzes why the global financial crisis in 2008 severely affected Asia’s trade. Asia has been suffering from the falls in export demand from developed countries. However the abrupt trade declines in Asia are not fully explained by reactions to this as in previous experiences. The question is why the financial crisis in 2008 brought about the abrupt and deep collapse in world trade, while other world-wide recessions had more moderate effects on world trade. This paper shows that the dynamic relationship between trade and trade finance is one important factor in explaining this question. This paper also applies the Granger (causality) test to uncover different relationships in the developed and developing economies and show different results for different countries in Asia. We employ a Markov-Switching FAVAR (Factor Augmented VAR) to show that global liquidity shocks are important factors in explaining the huge and abrupt trade drops in Asia.

Trade, Trade Finance, and Global Liquidity in Asia; Markov-Switching FAVAR Approach

This paper analyzes why the global financial crisis in 2008 severely affected Asia’s trade. Asia has been suffering from the falls in export demand from developed countries. However the abrupt trade declines in Asia are not fully explained by reactions to this as in previous experiences. The question is why the financial crisis in 2008 brought about the abrupt and deep collapse in world trade, while other world-wide recessions had more moderate effects on world trade. This paper shows that the dynamic relationship between trade and trade finance is one important factor in explaining this question. This paper also applies the Granger (causality) test to uncover different relationships in the developed and developing economies and show different results for different countries in Asia. We employ a Markov-Switching FAVAR (Factor Augmented VAR) to show that global liquidity shocks are important factors in explaining the huge and abrupt trade drops in Asia.

Internationalization choices and Italian firm performance during the crisis

We focus on the relationship between internationalization choices and performance of Italian firms during the first period of the financial crisis (2007–2010). Making use of a new firm-level database, we build a six-class taxonomy of firms’ internationalization activities; then we estimate firms’ performance as a function of internationalization forms, also estimating propensity score and Heckman selection models in order to control for endogeneity and sample selection bias. Over the period 2007–2010, Italian firms moved (on average) towards more complex forms of internationalization. Empirical analysis finds that these upward changes are related with positive effects on firms’ (labour) productivity, also in a period characterized by the 2009 trade collapse. These findings put additional emphasis on the issue of the diversification of both products and markets as a goal to be pursued by firms, even in times of crisis, to remain competitive and make profits.

Forecasting the Great Trade Collapse

This paper introduces a simple methodology to forecast international trade. The main innovation is to calculate non-unitary expenditure elasticities of import demand implied by non-homothetic preferences in the previous year to be further combined with the current change in expenditure to forecast the current imports. Using U.S. data on aggregate expenditure and good-level imports, we test the performance of the methodology in forecasting international imports. The methodology is successful in forecasting not only the Great Trade Collapse and the corresponding recovery period but also the other periods in the sample.

What drives heterogeneity in the resilience of trade: Firm‐specific versus regional characteristics

Employing micro-data of Dutch local business units, we show that firm characteristics such as size, economic activity, the traded product portfolio, the focus of trade involvement and the geographic pattern of trade are important determinants of recovery following the trade collapse of 2008–2009, both in terms of speed and depth. Our findings suggest that post-crisis growth is faster for trade in goods further downstream of the value chain and thus closer to the final consumer. Trade recovery at the firm-level does not crucially hinge on locational factors such as the province in which a firm is located or regional revealed comparative advantages in particular product groups.