1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

Understanding the World Trade Collapse

The collapse in world trade volumes at the end of 2008 and beginning of 2009 was exceptional by historical standards. This paper shows that world demand (to which trade has become more responsive in recent decades) can explain most of the collapse in world trade, but that tight credit conditions have likely amplified the short-term trade response. Credit tightening likely accelerated the trade decline through trade finance constraints and its relatively larger impact on trade-intensive sectors. A portion of the trade decline remains unexplained, which may reflect a possible breakdown in global supply chains. Looking ahead, the pace of normalisation in financial conditions and the future evolution of global supply integration will affect the speed of recovery in trade and global output.

English

Keywords: financial crisis, vertical supply, international trade, trade elasticity
JEL: F10: International Economics / Trade / Trade: General; F17: International Economics / Trade / Trade: Forecasting and Simulation; E0: Macroeconomics and Monetary Economics / General
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