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International Supply Chains and Trade Elasticity in Times of Global Crisis

The paper investigates the role of global supply chains in explaining the trade collapse of 2008-2009 and the long-term variations observed in trade elasticity.

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Building on the empirical results obtained from a subset of input-output matrices and the exploratory analysis of a large and diversified sample of countries, a formal model is specified to measure the respective short-term and long-term dynamics of trade elasticity. The model is then used to formally probe the role of vertical integration in explaining changes in trade elasticity. Aggregated results on long-term trade elasticity tend to support the hypothesis that world economy has undertaken in the late 1980s a “traverse” between two underlying economic models. During this transition, the expansion of international supply chains determined an apparent increase in trade elasticity. Two supply chains related effects (the composition and the bullwhip effects) explain also the overshooting of trade elasticity that occurred during the 2008-2009 trade collapse. But vertical specialization is unable to explain the heterogeneity observed on a country and sectoral level, indicating that other contributive factors may also have been at work to explain the diversity of the observed results.

No: ERSD-2010-08

Authors:
Hubert Escaith — Economic Research and Statistics, WTO
Nannette Lindenberg — Institute of Empirical Economic Research, University of Osnabrück
Sébastien Miroudot — Trade and Agriculture Directorate, Trade Policy Linkages and Services Division, OECD

Manuscript date: February 2010

Key Words:

international supply chain, trade elasticity, global crisis, trade collapse, input-output analysis, error-correction-model

JEL classification numbers:

C67, F15, F19

 
  

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This is a working paper, and hence it represents research in progress. This paper represents the opinions of the author, and is the product of professional research. It is not meant to represent the position or opinions of the WTO or its Members, nor the official position of any staff members. Any errors are the fault of the author. Copies of working papers can be requested from the divisional secretariat by writing to: Economic Research and Statistics Division, World Trade Organization, Rue de Lausanne 154, CH 1211 Geneva 21, Switzerland. Please request papers by number and title.

Download paper in pdf format (42 pages, 515KB)