Trade patterns in the 2060 world economy

Abstract

for their valuable comments and suggestions and Sarah Michelson for excellent editorial support. The paper has also benefited from comments by members of Working Party No. 1 of the OECD Economic Policy Committee. The statistical data for Israel are supplied by and under the responsibility of the relevant Israeli authorities. The use of such data by the OECD is without prejudice to the status of the Golan Heights, East Jerusalem and Israeli settlements in the West Bank under the terms of international law. This paper presents long-term trade scenarios for the world economy up to 2060 based on a modelling approach that combines aggregate growth projections for the world with a detailed computable general equilibrium sectoral trade model. The analysis suggests that over the next 50 years, the geographical centre of trade will continue to shift from OECD to non-OECD regions reflecting faster growth in non-OECD countries. The relative importance of different regions in specific export markets is set to change markedly over the next half century with emerging economies gaining export shares in manufacturing and services. Trade liberalisation, including gradual removal of tariffs, regulatory barriers in services and agricultural support, as well as a reduction in transaction costs on goods, could increase global trade and GDP over the next 50 years. Specific scenarios of regional liberalisation among a core group of OECD countries or partial multilateral liberalisation could, respectively, raise trade by 4% and 15% and GDP by 0.6% and 2.8% by 2060 relative to the status quo. Finally, the model highlights that investment in education has an influence on trade and high-skill specialisation patterns over the coming decades. Slower educational upgrading in key emerging economies than expected in the baseline scenario could reduce world exports by 2% by 2060. Lower up-skilling in emerging economies would also slow down the restructuring towards higher value-added activities in these emerging economies.

International trade consequences of climate change

“…An analysis of the trade policy response to climate change is beyond the scope of this paper. 36 Future work can build on preliminary analysis in Chateau et al (2015), who show that a "partial multilateral scenario" will benefit all countries, but especially the same less-developed economies which are most threatened by climate change. Many of the countries that are most severely affected, and that have the strongest reduction in revealed comparative advantage, are also those that are rapidly growing economies in the baseline, with significantly increasing world market shares in the major commodities.…”

“…the real exchange rate. In line with the long-term economic projections presented in Chateau et al (2015), growth in trade (gross exports of goods and services) is projected to continue to outpace GDP growth over the next 45 years. The projected global trade-to-GDP elasticity is assumed to be around 1.2 for all goods and services (1.35 for goods and 1.15 for services), over the whole period.…”

“…The projected global trade-to-GDP elasticity is assumed to be around 1.2 for all goods and services (1.35 for goods and 1.15 for services), over the whole period. Thus, although trade is projected to increase more rapidly than income, this assumption could be seen as low relative in comparison to the historical values of 1.6 for goods between 1950-2009 or the projected value of 1.4 for goods for 2012-2060 presented in the context of the OECD@100 project (Chateau et al, 2015). 3 The more conservative approach adopted in this report is in line with the more pessimistic outlook for international trade in the Economic Outlook of November 2015.…”

“…Recent analysis by the OECD projects that the trend of economic integration and intensified global trade will continue in the future, albeit at a slower pace than in the last decades (Chateau et al, 2015). In the long run, global trade and its relative size to global income are driven by (i) transportation and communications costs (including "transaction costs"), (ii) income growth and changes in preferences, (iii) sectoral comparative advantage in production of goods and services, and (iv) trade policies and trade agreements (Feenstra, 1998).…”

Long-term Patterns of Trade and Specialisation

“…Well-developed financial institutions can enhance the allocation of resources to their most productive use (Levine 1997), and they can also promote faster growth in industries more dependent on external funds. In fact, OECD estimates suggest that financial development would increase the value-added share of industries highly dependent on external finance (Johansson and Olaberría, 2014). For instance, if financial development were to increase from that of the median country to the level of the country at the top quartile (e.g.…”