Structural Change and Global Trade

Abstract

Since 1970, services has risen from 50 percent of the world's final consumption expenditures to nearly 80 percent. Services are also far less traded between countries than goods. Thus, as consumers become more service-oriented, the world will become "less open", affecting international trade volumes. Using a general equilibrium trade model with non-homothetic preferences and endogenous shifts in consumption behavior, we quantify the impact of such structural change on global trade across 27 countries. We find that world trade as a fraction of GDP would have been about 23 percentage points or 70 percent higher by 2015 if countrylevel expenditure patterns were unchanged from 1970 onwards. Income effects explain about one-quarter of this counterfactual. Without input-output linkages in production, the counterfactual increase in world trade with no structural change would be even greater. Finally, the process of structural transformation toward services systematically impedes the gains from trade. JEL codes: F41, L16, O41

Classification and Roundabout Production in High‐value Agriculture: A Fresh Approach to Industrialization

“…(Koopman et al., 2010). This process underlies the dramatic increase in the share of world expenditure on services, which rose from about half of global expenditures in 1970 to 80 per cent in 2015 (Lewis et al., 2018: 1). One important implication for development policy is that the ‘classic focus on factories can be misleading’ (Baldwin et al., 2015: 28).…”

Structural change and global trade flows: Does an emerging giant matter?

“…Recent work on the impact of global structural change also touches upon similar themes. For example, using a multi‐country and two‐sector model, Lewis, Monarch, Sposi, and Zhang (2018) discuss the impact of structural change on measures of openness to trade, whereas here we focus on the impact of structural change in China on other economies. Moreover, our multilateral trade analysis makes use of all 28 industrial sectors, including services.…”

Engel's Law in the Global Economy: Demand‐Induced Patterns of Structural Change, Innovation, and Trade

“… Recently, Lewis, Monarch, Sposi, and Zhang () showed, in a model with a tradeable manufacturing sector and a nontradeable service sector, that globalization in manufacturing trade leads to a smaller increase in the volume of trade, because higher income elasticity of services causes a shift in the demand composition from manufacturing to services, using the isoelastically nonhomothetic CES. …”