Arm's-length trade: a source of post-crisis trade weakness
Csilla Lakatos and
No 8144, Policy Research Working Paper Series from The World Bank
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)
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