Analyzing Trade Growth Effects of Deviations from Long-run Economic Growth

Cephas Naanwaab and Jeffrey Edwards

Global Economy Journal (GEJ), 2017, vol. 17, issue 4, 1-11

Abstract: This paper explores the relationship between trade growth and long-run trends in real GDP growth from a purely empirical perspective. Its novelty lies in the way that it models trade growth: as a function of cyclical trends in real GDP growth. The main finding is that trade growth responds asymmetrically to deviations from long-run GDP growth. Generally, trade growth is positive and statistically significant when GDP growth is above the long-run trend. On the other hand, trade growth ceases but does not become negative when GDP growth falls below its long-run trend. While this behavior holds true broadly, individual countries’ trade growth may respond differently when GDP growth is above or below trend. Comparatively, low-income countries’ trade growth takes the greatest hit when economic growth slows, while lower-middle and high-income countries are least affected. These findings have potential implications for trade policy-making in the twenty-first Century especially given the current atmosphere of anti-globalization and slow trade growth.

Keywords: trade growth; GDP growth; imports; exports; business cycle (search for similar items in EconPapers)
Date: 2017
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DOI: 10.1142/GEJ-2017-0060

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