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DECTI Trade Seminar: Trade and the Global Recession

Sponsor: Development Economics and Chief Economist (DEC)

Speaker: Brent Neiman, University of Chicago, Booth School of Business, joint with Jonathan Eaton, Samuel Kortum and John Romalis

Abstract: The ratio of global trade to GDP declined by nearly 1/3 during the global recession of 2008-2009.  This large drop in international trade has generated significant attention and concern. Given the severity of the recession, did international trade behave as we would have expected? Or alternatively, did international trade shrink due to factors unique to cross border transactions per se?  This paper merges an input-output framework with a gravity trade model and solves numerically several counter-factual scenarios which give a quantitative sense for the relative importance of changes in demand, trade frictions, and other shocks in the current recession. Our results suggest that the decline in demand for manufactures was the most important driver of the decline in manufacturing trade. Changes in demand for durable manufactures alone accounted for more than 60 percent of the cross-country variation in changes in manufacturing trade/GDP. The decline in total manufacturing demand (durables and non-durables) accounted for about 70 percent of the global decline in trade/GDP. Increasing trade frictions played an important role in some countries and were insignificant in others. Globally, changing trade frictions explained about 15 percent of the decline in manufacturing trade/GDP.

For Information: Yasmin D Souza

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