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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 E. Statistical Decomposition of Policy Effectiveness Indicators

This appendix decomposes the policy effectiveness indicators (change in the variable of interest divided by the money value of the policy shock) using regression analysis. The objective is to relate the design characteristic of the policy to its effectiveness as defined by the multiplier. The regressions are performed over the set of simulation results on unilateral policy moves, yielding 56 observations. Table Annex E.1 reports the results. As can be seen, only a few of the estimated coefficients are highly statistically significant, and hence the estimates need to be carefully interpreted. Nonetheless, the table could be used as a guide.

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