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Trade and Economic Effects of Responses to the Economic Crisis

image of Trade and Economic Effects of Responses to the Economic Crisis

The dramatic collapse in world trade in 2009 is, this report shows, mainly due to: the drop in demand for highly traded products; the drying up of trade finance; and the vertically integrated nature of global supply chains. Contrary to expectations, protectionist measures were relatively muted and did not play a significant part. In fact, because of their sheer size, stimulus measures may have had more impact on trade than direct trade policy measures Nevertheless, dollar for dollar, direct trade restricting measures have the most strongly negative impacts on growth and employment: a one dollar increase in tariff revenues results in a USD 2.16 drop in world exports and a USD 0.73 drop in world income. 

The analyses presented here suggest that exit strategies from measures to deal with the crisis will be most effective in boosting growth and jobs if they first roll back measures that discriminate between domestic and foreign firms and those that target specific sectors. General demand stimulus measures and active labour market policies are preferable under current conditions. 

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Annex C. Short-term trade finance and its impact on trade: Evidence from panel data and time series

The methodology used to ascertain the effect of changes in the stock of trade finance, demand and the cost of financing on both import flows and total trade is assessed in this annex. It is well known that there is a paucity of reliable data on trade finance. We use a proxy to assess the impact of changes in trade finance on cross-country changes in imports and total trade over time. In particular, we estimate separately the last three quarters of 2008 and first quarter of 2009 and investigate how the effect of changes in trade finance availability, demand and cost of financing may have affected imports and total trade flows before and after the onset of the crisis.

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