Analyzing Trade Growth Effects of Deviations from Long-run Economic Growth
-
Cephas B. Naanwaab
and
Jeffrey A. Edwards
Abstract
This paper explores the relationship between trade growth and long-run trends in real GDP growth from a purely empirical perspective. Its novelty lies in the way that it models trade growth: as a function of cyclical trends in real GDP growth. The main finding is that trade growth responds asymmetrically to deviations from long-run GDP growth. Generally, trade growth is positive and statistically significant when GDP growth is above the long-run trend. On the other hand, trade growth ceases but does not become negative when GDP growth falls below its long-run trend. While this behavior holds true broadly, individual countries’ trade growth may respond differently when GDP growth is above or below trend. Comparatively, low-income countries’ trade growth takes the greatest hit when economic growth slows, while lower-middle and high-income countries are least affected. These findings have potential implications for trade policy-making in the twenty-first Century especially given the current atmosphere of anti-globalization and slow trade growth.
Appendix
A Lagged Control Variable Coefficient Estimates for Split Growth Trade Regressions
| Trade Growth | Import Growth | Export Growth | |
|---|---|---|---|
| FDI–High Income | 0.014 ** | 0.014 ** | 0.013 ** |
| (0.000) | (0.005) | (0.000) | |
| UM Income | −0.525 ** | −0.438 ** | −0.627 ** |
| (0.000) | (0.018) | (0.000) | |
| LM Income | −0.122 | −0.404 ** | 0.062 |
| (0.577) | (0.011) | (0.860) | |
| Low Income | 0.188 | 0.113 | 0.136 |
| (0.613) | (0.814) | (0.601) | |
| E. Rates–High Income | 0.003 * | 0.003 ** | 0.001 |
| (0.083) | (0.023) | (0.443) | |
| UM Income | −0.0001 | −0.001 | 0.0006 |
| (0.927) | (0.348) | (0.453) | |
| LM Income | 0.0001 | 0.0001 | −0.0001 |
| (0.474) | (0.351) | (0.826) | |
| Low Income | 0.0002 | 0.0001 | 0.0004 |
| (0.536) | (0.863) | (0.319) | |
| Tariffs–High Income | −0.068 * | −0.001 | −0.170 ** |
| (0.073) | (0.979) | (0.000) | |
| UM Income | 0.137 | 0.192 | 0.122 |
| (0.436) | (0.240) | (0.621) | |
| LM Income | 0.190 * | 0.185 ** | 0.181 |
| (0.054) | (0.003) | (0.285) | |
| Low Income | 0.311 ** | 0.249 ** | 0.382 ** |
| (0.000) | (0.000) | (0.001) | |
| Fuel Imp–High Income | −0.067 | −0.092 ** | −0.048 |
| (0.114) | (0.002) | (0.491) | |
| UM Income | −0.054 | −0.035 | −0.089 |
| (0.569) | (0.681) | (0.474) | |
| LM Income | −0.031 | −0.004 | −0.071 |
| (0.599) | (0.944) | (0.383) | |
| Low Income | 0.123 | 0.071 | 0.192 |
| (0.106) | (0.458) | (0.199) | |
| Fuel Exp–High Income | −0.004 | −0.007 | −0.023 |
| (0.777) | (0.614) | (0.175) | |
| UM Income | −0.054 ** | −0.044 | −0.065 |
| (0.018) | (0.216) | (0.204) | |
| LM Income | −0.060 ** | −0.077 ** | −0.035 |
| (0.033) | (0.004) | (0.396) | |
| Low Income | −0.010 | 0.107 | −0.190 |
| (0.917) | (0.198) | (0.340) | |
| No. of Observations | 2041 | 2041 | 2041 |
| No. of Countries | 155 | 155 | 155 |
| Wald chi(2) P-value | 0.000 | 0.000 | 0.000 |
* implies significance at 10%, ** at 5%. P-values in parentheses. UM=upper-middle income countries, LM=lower-middle, High=high income, Low=lower income. FDI=foreign direct investment inflows, E. Rates=exchange rates, Imp=imports, Exp=exports.
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Articles in the same Issue
- Analyzing Trade Growth Effects of Deviations from Long-run Economic Growth
- The Asymmetric Effects of Exchange Rate Changes on the Trade Balance of Singapore
- Economic Freedom and the Informal Economy
- Sustainability of Current Account Deficits in the OECD Countries: Evidence from Panel Data Estimators
- The Anatomy of Trade Deflection
- An Empirical Analysis of Aggregate Import Demand Function for India
- Russia and the Use of Trade Policy: Concentration with Soviet Successor States
- The Comparative Advantages in the Services Sector of Developing Economies
