The Great Trade Collapse

Abstract

We survey recent literature on the causes of the collapse in international trade during the 2008-2009 global recession. We argue that the evidence points to the collapse in aggregate expenditure, concentrated on trade-intensive durable goods, as the main driver of the trade collapse. Inventory adjustment likely amplified the impact of these expenditure changes on trade. In addition, shocks to credit supply constrained export supply further exacerbating the decline in trade. Most evidence suggests that changes in trade policy did not play a large role. We conclude that one benefit of the trade collapse is that it has stimulated research in neglected areas at the intersection of trade and macroeconomics.

The Cyclicality of the Income Elasticity of Trade

“…As g goes to zero, the two branches of the hyperbole get closer, the vertical asymptote eventually wanes and the function becomes an horizontal line, set at the value given by equation (5). In other words, absent the trend in the volumes of manufacturing and services, the cyclicality disappears and the elasticity stabilizes at a constant level, which is larger than 1.…”

“…In the …rst step, we consider a sample of 161 advanced and emerging economies and, using annual data from 1970 5 Because the volumes of trade ‡ows and GDP increase over time, the international real business cycle literature consider HP …ltered series. As the focus of our paper is the income elasticity, which is a ratio between growth rates, our empirical analysis will tackle the time trend by focusing on growth rates, complementing that literature.…”

Trade and Uncertainty

“…Evenett (2010) and Bown (2011) find that protectionism was contained during the Great Recession. This view is underlined by Bems, Johnson, and Yi (2013). More specifically, Kee, Neagu, and Nicita (2013) find that less than two percent of the Great Trade Collapse can be explained by a rise in tariffs and antidumping duties.…”

Exchange rate bands of inaction and play-hysteresis in Greek exports to the Euro Area, the US and Turkey: sectoral evidence

“…With respect to financial constraints "(t)he reluctance of the 28 Greek government to adhere to the agreed reform agenda raised the risk of Greece's exit from the euro area; this risk was pushed entirely on the productive sector in the form of restricted and expensive financing, putting Greek companies at an acute and persistent competitive disadvantage. The high cost of money and the need to deleverage corporate balance sheets created an uneven playing field in export markets as companies within the euro area were facing a fraction of the costs Greek companies were facing" (Pelagidis, 2014, for the Greek case and, more generally, Bems, Johnson, and Yi. 2013).…”