Is international trade fragmenting? Case study for EU Member States

Oxana Babecka Kucharcukova and Jan Bruha

A chapter in CNB Global Economic Outlook - November 2023, 2023, pp 14-21 from Czech National Bank, Research and Statistics Department

Abstract: This article examines how the concentration of international trade in goods has evolved for EU Member States over the last quarter of a century in terms of its territorial breakdown. Using the Herfindahl-Hirschman Index, we show that the trade concentration in most EU Member States fell slightly or stagnated in the previous period. In the group of new Member States, the decline in concentration was significant and continued until 2010. This outcome would suggest that global trade is not fragmenting. However, the dynamics of the Herfindahl-Hirschman Index mask a significant compositional effect - the decrease in the concentration index was due only to trade with countries with a similar geopolitical orientation. We divide countries into three geopolitical blocs based on voting data from the United Nations (UN) General Assembly. If we recalculate the Herfindahl-Hirschman Index for such broadly defined blocs, we find that for most EU Member States the concentration index started to rise slowly around 2015. This means that EU Member States are concentrating their trade in countries with similar geopolitical positions, which may be indicative of a creeping fragmentation of international trade.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:cnb:ocpubc:geo2023/11

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