Trade collapse during the covid-19 crisis and the role of demand composition

Heli Simola

No 12/2021, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: We examine the role of demand composition in explaining the trade collapse and recovery during the ongoing covid-19 crisis. We apply an import-intensity-adjusted measure of demand to examine import trends in 40 advanced and emerging economies over the period 1Q95 to 4Q20. We focus on the crisis periods related to covid-19 and the global financial crisis in 2008-2009. As during the global financial crisis, we find that import-intensity-adjusted demand is a key factor contributing to trade developments during the covid-19 crisis. The analysis also reveals substantial differences between the current crisis and the global financial crisis. Trade decline during the global financial crisis was heavily investment-led. In the current crisis, consumption and import demand from the service sector have had much larger roles. The recovery of trade has been notably faster during the covid-19 crisis and led by exports as opposed to the much more important role played by domestic demand during the global financial crisis.

Keywords: International trade; covid-19; import-intensity-adjusted demand (search for similar items in EconPapers)
JEL-codes: F10 F14 F17 G01 (search for similar items in EconPapers)
Date: 2021
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:bdp2021_012

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