SPECIAL TOPIC: WORLD TRADE SLOWDOWN AND IMPACTS ON THE HUNGARIAN ECONOMy
5.2 Cyclical and structural explanations
Based on stylised facts it is obvious that the moderate trade dynamics observed in recent years are linked to the relatively poor economic performance of the recovery period. Thus, the decline may be attributable – at least partially – to cyclical factors. Based on Freund (2009) and Abiad et al. (2014), the negative impact of crises on trade is not limited to the crisis period, but may persist in the medium term as well. Accordingly, economic growth of the euro area and China – which is more moderate than before – may also have a negative impact on trade also in the beginning of the recovery period via the decreasing domestic demand components with high import content (investments and consumption). Declining demand as a result of the crisis may have had a major impact on trade dynamics; however when examining the trends of recent years, the question arises to what extent the structural factors may have played a role – in addition to the cyclical impacts – in the process. In his decomposition analysis, Constantinescu et al. (2015) find that the cyclical factors – such as insufficient demand – were dominant during the global economic crisis and in the first year of the recovery, while their contribution decreased in recent years. According to their calculations almost half of the downturn between 2012 and 2013 may be attributable to the long-term component. Based on the results, global trade has lost growth momentum since the crisis not only due the slower dynamics of global economic activity, but also to the lower income sensitivity of trade. Based on the results of the bivariate BVAR estimation performed by the ECB (2015), the decrease in trade dynamics observed in recent years has been attributable primarily – but not exclusively – to the decline in economic activity. The fall of income elasticity of trade from 1.6 to 1.3 per cent may also point to weaker world trade. According to the analysis of Hoekman et al. (2015), cyclical factors are the most dominant, but several structural – nonmacroeconomic – factors may also contribute to the decline of world trade growth.
Besides the cyclical effects implied by the global recession and the moderate economic performance of the recovery period, structural factors also play an important role. These include, in addition to the past decades’ major geopolitical events, the global value chains’ expansion reaching a limit, the change in the relative importance of import-intensive GDP components and the protectionist trade policy. The shift of global trade structure to components with lower income elasticity may also decreased the income elasticity of trade (Hoekman et al., 2015). The extraordinary expansion of world trade from the second half of the 1980s until the pre-crisis years was linked to the reintegration process followed by the political transitions of the Central and Eastern European countries, which boosted trade through the reinstated economic relations with Western Europe. Another determinant structural factor is the exportoriented growth strategy introduced by China, which was followed by its accession to the World Trade Organisation (2001). In addition, the broadening of global value chains – which expanded external trade relations as a result of the large enterprises’ outsourcing processes – was also a process that dominated the era (Hoekman et al., 2015). Global value chains contributed to the expansion of world trade through productivity and the increase in economies of scale in the last almost twenty years. The info-communication technological progress of the 1990s led to the fast expansion of global value chains, and thereby to the increase in the income elasticity of trade (Constantinescu et al., 2015). The change in elasticity may primarily be triggered by countries with large weight (USA, China). In addition, the crisis may have increased the uncertainties related to foreign trade relations, and the various natural disasters (earthquake in Japan, flood in Thailand) supported the enterprises’ cost efficient decisions upon the value chain planning (Hoekman et al., 2015) Another explanation for the decline in income elasticity is the change in the relative importance of GDP components (ECB, 2015). When economic GROWTH REPORT • 2015
103
