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Arm's-length trade: a source of post-crisis trade weakness

Csilla Lakatos and Franziska Ohnsorge

No 8144, Policy Research Working Paper Series from The World Bank

Abstract: Trade growth has slowed sharply since the global financial crisis. U.S. trade data highlights that arm's-length trade ?trade between unaffiliated firms?accounts disproportionately for the overall post-crisis trade slowdown. This is partly because arm's-length trade depends more heavily than intra-firm trade on emerging market and developing economies (EMDEs), where output growth has slowed sharply from elevated pre-crisis rates, and on sectors with rapid pre-crisis growth that boosted arm's-length trade pre-crisis but that have languished post-crisis. Compounding such compositional effects, arm's-length trade is also more sensitive to changes in demand and real exchange rates. For example, the income elasticity of arm's-length exports is about one-fifth higher than that of intra-firm exports. Hence, post-crisis global growth weakness has weighed more on arm's-length trade than on intra-firm trade. Unaffiliated firms may also have been hindered more than multinational firms by constrained access to finance during the crisis, heightened policy uncertainty, and their typical firm-level characteristics.

Keywords: International; Trade; and; Trade; Rules (search for similar items in EconPapers)
Date: 2017-07-11
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