22 Jun 2011
The Impact of the Crisis on Trade and the role of Regional Integration
NCCR Trade Working Paper No 2011/56 by Michael Gasiorek & Sarah Ollerenshaw
This paper builds upon the existing literature which identifies the possible role of the level and composition of demand, the composition of supply, changes in protection and access to trade credit as explanatory factors for the dramatic decline in trade. In this paper we focus on each of the above and on the role of Regional Trading Agreements during the crisis. In comparison to the existing literature we work with monthly data in a multi-country context. There are a number of clear and consistent messages that emerge. First, we find that changes in demand (economic activity) did indeed negatively impact on trade, but by less than previously suggest authors. Secondly, changes in trade credit impacted negatively on trade flows; as did the introduction of bilateral protectionist measures. Fourthly, we find that compositional effects were also important. Finally and with regard to each of the above we find consistent evidence that countries who belonged to a regional trading agreement, and in particular between high income countries experienced a bigger decline in trade, and where the role of the composition of trade was also more significant.