Understanding the Weakness in Global Trade

Przemyslaw Wozniak and Malgorzata Galar

No 33, European Economy - Economic Briefs from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: The post-crisis weakness of global trade, which starkly contrasts with the marked acceleration in the previous two decades, has received considerable attention in the context of the global policy debate. Given the key role of trade in spreading innovation, boosting productivity and ultimately fostering economic growth, a better understanding of trade developments and outlook is crucial for policymakers. This paper takes stock of existing empirical studies on the determinants of global trade flows with particular attention given the recent slowdown. In line with our estimates, these studies suggest that a large part of the trade weakness can be explained by geographical shifts in GDP and trade shares towards less intensely-trading emerging markets, changes in the composition of demand away from import-intensive investment, and the slowdown of global value chains. Other important factors include structural changes in China, the unwinding of the commodity price boom and a slower pace of multilateral trade liberalisation. Our findings, in line with recent literature, suggest that the "new normal" is for trade expansion to remain largely in line with output growth, and unlikely to regain its pre-crisis vigour. At the same time, policymakers should ensure that the ongoing recovery is sustained, by resisting protectionism and reinvigorating the trade liberalisation agenda.

Keywords: International trade; global economy; trade elasticity to GDP; trade weakness; global value chains; protectionism; globalisation; Wozniak; Galar. (search for similar items in EconPapers)
JEL-codes: F (search for similar items in EconPapers)
Pages: 20 pages
Date: 2018-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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