Trade and Sectoral Impacts of the Global Financial Crisis: A Dynamic CGE Analysis

Anna Strutt and Terrie Walmsley

No 331920, Conference papers from Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project

Abstract: The current global financial crisis has resulted in a significant downturn in the global economy, with impacts felt throughout the world. We use a dynamic global general equilibrium model to explore the effects of two economic slowdown scenarios, with a particular focus on trade and sectoral impacts. We include the impact of fiscal stimulus packages and a general decline in global investment. We also explore the potential impacts of using trade policy to respond to the crisis, by investigating the impact on the global economy of moving toward greater protection of domestic industries. In the short and long run, most countries lose as a result of the crisis, as expected. The extent of the declines in the long run depend on the extent to which investment declines in the region and on the extent to which savings declines globally. Globally, our results suggest that under a ‘moderate’ crisis scenario, trade falls by approximately 14 percent from the 2020 baseline. Within this, the composition of trade changes quite markedly, with shifts reflecting changes in demand for construction of investment goods; the increasing longer‐term demand from China and India; and at least in the short run, different capital intensities of production in different economies. A more extended crisis or increased protection are both expected to further accentuate global losses. While the more severe crisis adversely impacts all sectors, the increase in tariffs mainly impacts sectors and regions which increase protection significantly

Keywords: Financial Economics; International Relations/Trade (search for similar items in EconPapers)
Pages: 30
Date: 2010
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