Impacts of the Euro sovereign debt crisis on global trade and economic growth: A General Equilibrium Analysis based on GTAP model

Li Na, Shi Minjun and Huang Wen

No 332356, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: Euro sovereign debt crisis will influence international trade and global economy through affecting factors supply, consumer and investment demand, and production efficiency in the PIIGS region. This paper aims to examine the impacts of Euro sovereign debt crisis on global import, export and global economic growth through trade channels by using the methods of general equilibrium analysis and scenario simulation based on GTAP model. As Euro sovereign debt crisis still continue, this research is carried out by two steps to examine its impacts on global economy: 1) the impacts of Euro sovereign debt crisis on global economy up to now (until the end of 2012); 2) the impacts of different trends of Euro sovereign debt crisis on global economy in future (2012-2015). The simulation results show that global economic growth has suffered a serious damage from 2010 to 2012. Affected by Euro sovereign debt crisis, the average annual growth rate of the global economy has reduced by 0.65% and global unemployment rate has risen by 1.81%. Global trade was in depression and the average annual trade growth was reduced by 1.14%. The import and export trade of the United States and China suffered more serious affected by the crisis. Due to the impact of the European sovereign debt crisis, the average annual growth of China's economy decreased 0.37 percentage points, which is more serious than the United States and other BRIC countries. The exports of raw materials processing and machinery and electronics manufacturing industries of China were affected more serious. The impacts of the European sovereign debt crisis on global economic growth will continue in the next few years (2012-2015). The gap of the prospects for global economic growth between in pessimistic and optimistic scenarios is larger, and boosting the global economy still needs stronger economic stimulus policies to carry out. Trade diversion is hard to offset the impacts of the shrinking market of EU, and the European sovereign debt crisis will continue to affect global trade. The external demand environment of Chinese economy will continue in depression, and the decline of investment and consumption of other countries caused by the European sovereign debt crisis on will further led to reduce their imports from China, which requires the concern and vigilance of the Chinese government.

Keywords: International Relations/Trade; Financial Economics (search for similar items in EconPapers)
Pages: 17
Date: 2013
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