The Volatility of International Trade Flows in the 21st Century : Whose Fault Is It Anyway?
After investment, exports and imports are the most volatile components of aggregate demand within countries. Moreover, the volatility of growth and the volatility of trade flows tend to move together; they declined from the 1990s until 2009, follow...
| Main Authors: | , , , |
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| Language: | English en_US |
| Published: |
World Bank, Washington, DC
2016
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| Subjects: | |
| Online Access: | http://documents.worldbank.org/curated/en/2016/08/26633356/volatility-international-trade-flows-21st-century-fault-anyway http://hdl.handle.net/10986/24862 |
| Summary: | After investment, exports and imports
are the most volatile components of aggregate demand within
countries. Moreover, the volatility of growth and the
volatility of trade flows tend to move together; they
declined from the 1990s until 2009, followed by an increase
since 2009. This paper explores the drivers of such
movements in trade-flow volatility. The analysis decomposes
trade growth into six components to study their contribution
to the overall volatility of trade flows, and presents three
findings. First, trade volatility is mostly explained by a
factor common to all countries, country-specific factors,
and changes in the gravity-related characteristics of a
country's trading partners. Product composition and the
identity of trading partners appear to be less important in
explaining volatility. Second, the pre-2009 decline in
volatility and the post-2009 increase in volatility appear
to be driven by different factors. The former is mostly
explained by a steady decline in the variance of
country-specific factors. In contrast, the latter appears to
be driven mainly by an increase in the volatility of factors
common to all countries. Third, trade diversification is a
likely force behind the steady decline in trade volatility
driven by country-specific factors, especially in developing countries. |
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