The Trade Response To Global Downturns: Historical Evidence

Abstract

The Policy Research Working Paper Series disseminates the findings of work in progress to encourage the exchange of ideas about development issues.An objective of the series is to get the findings out quickly, even if the presentations are less than fully polished.The papers carry the names of the authors and should be cited accordingly.The findings, interpretations, and conclusions expressed in this paper are entirely those of the authors.They do not necessarily represent the views of the International Bank for Reconstruction and Development/World Bank and its affiliated organizations, or those of the Executive Directors of the World Bank or the governments they represent. Policy Research Working Paper 5015The author examines the impact of historical global downturns on trade flows.The results provide insight into why trade has dropped so dramatically in the current crisis, what is likely to happen in the coming years, how global imbalances are affected, and which regions and industries suffer most heavily.The author finds that the elasticity of global trade volumes to real world GDP has increased gradually from around 2 in the 1960s to above 3 now.The author also finds that trade is more responsive to GDP during global downturns than in tranquil times.This paper-a product of the Trade and Integration Team, Development Research Group-is part of a larger effort in the department to understand the implications of the global economic crisis for international trade flows.Policy Research Working Papers are also posted on the Web at http://econ.worldbank.org.The author may be contacted at cfreund@ worldbank.org.The results suggest that the overall drop in real trade this year is likely to exceed 15 percent.There is significant variation across industries, with food and beverages the least affected and crude materials and fuels the most affected.On the positive side, trade tends to rebound very rapidly when the outlook brightens.The author also finds evidence that global downturns often lead to persistent improvements in the ratio of the trade balance to GDP in borrower countries. The Trade Response to Global Downturns: Historical Evidence

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