Is world trade slowing down? New evidence on trade-income elasticity

Abstract

This paper furthers and updates the research on the nature of the so-called global trade slowdown. Not only do we explain and discuss the determinants of this phenomenon, but we also offer an empirical description of the recent evolution of trade and trade elasticity. With the purpose of testing whether this is a structural phenomenon or not, we build an Error Correction Model for both world and regional data on trade and income using data from the World Bank for the period 1970-2017. World, OECD and Asian countries trade elasticity figures show a remarkable reduction after the hyperglobalization period (1986-2001), opposed to those of Latin America where trade volume has not stagnated so much. This slowdown might have major consequences for any country, but especially for those which have relied more intensively on trade as an engine for growth.