Changing Patterns of Global Trade

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3 Inter vs Intra Regional Connectedness of Major Exporters 8. 4 World Manufacturing Exports and Their Composition 8. 5 Grubel Lloyd Index 10, 6 Gross and Value Added Exports to the World 2004 11. 7 Top Ten Import Origins into China and Japan 1999 and 2009 12. 8 Jurisdictions with Systemic Trade and Financial Sectors 13. 9 Foreign Contents in Gross Exports 15, 10 Foreign Contents in Gross Exports High Technology Sectors 19. 11 Source of Change in Exports of Advanced Countries 20. 12 High Technology Export Growth 22,13 Technology Content of Exports 25. 14 Export Similarity Index ESI by Destination in 1995 and 2008 China Euro Area. Japan and the United States 29,15 Income Level of Exports EXPY 30. 16 Growth in GDP per capita 1995 to 2008 31, 17 Income Level of Exports 2008 vs GDP per capita 2008 31.
18 Three Trading Blocks and Top Export Markets by 2015 31. 19 Exports by Section Percent Change and Share 41,20 Responses of Exports by Technology Content 41. 21 Import Responses by Type of Good 43, 22 Responses of Exports and Imports Supply Chain vs Rest of World 45. 23 Contribution to Adjustment in Trade Balance 45,1 Assessing Systemic Trade Interconnectedness 14. 2 Factory Asia 18, 3 OECD Measure of Trade by Technology Intensity 20. 4 Why Has the Share of High Technology Sectors in Japanese Exports Fallen Since the. 5 Structure of Export Baskets in LICs 26, 6 Supply Chain Implications of the Pacific Earthquake in Japan 33.
7 Impact of Exchange Rate Changes and Trade Flows A Historical Perspective 39. 8 Appreciation Within the Asian Supply Chain 41, 9 Revealed Comparative Advantage RCA Analysis in Japan 43. Appendixes, 1 A Methodology for Assessing Systemic Trade Interconnectedness 49. 2 Measures Used to Characterize Global Supply Chains 52. 3 Definition of Concepts Related to Export Analysis 56. 4 New Drivers of Global Trade Key Stylized Facts 57. 5 Data and Modeling Strategy 60, 6 Measuring the Impact of Relative Price Changes on the Current Account 64. Appendix Tables,A2 1 FVA Share in Gross Exports 53. A2 2 FVA Content in Gross Exports 54, A2 3 FVA Share in Gross Exports by Countries of Origin 55.
Appendix Figures, A4 1 Export Composition of Simulation Countries by Destination 59. A4 2 Export market shares and real effective exchange rates 1990 2010 59. EXECUTIVE SUMMARY, The past few decades have seen important shifts that have reshaped the global trade. landscape As a share of global output trade is now at almost three times the level in the. early 1950s in large part driven by the integration of rapidly growing emerging market. economies EMEs The expansion in trade is mostly accounted for by growth in. noncommodity exports especially of high technology products such as computers and. electronics It is also characterized by growing regional concentration and an ongoing shift of. technology content toward EMEs These developments in global trade have important. implications for trade patterns in particular in response to relative price changes The aim of. this paper is to outline the factors underlying these changes and analyze their implications for. the outlook for global trade patterns, The expansion of global and regional trade was driven by trade liberalization and. subsequently by vertical specialization and income convergence Multilateral and bilateral. liberalization since early 1950s has led to significantly lower trade barriers in advanced. economies followed more recently by developing countries Along with lower trade barriers. technology led declines in transportation and communication costs also facilitated the. fragmentation of production stages beyond national borders allowing supply chains to. become regional or even global A convergence in income levels and factor endowments. across countries also played a role in the growth of trade relative to output especially that. of intraindustry trade, Advanced countries and EMEs play different roles in global supply chains Advanced. economies tend to be upstream in the supply chain This position is reflected in relatively. small foreign contents in their exports and relatively large contributions towards other. downstream countries exports In contrast EMEs tend to be downstream in the supply chain. with relatively large shares of imported content in their exports The extent of foreign content. in exports of advanced countries and EMEs has important and contrasting implications for. the sensitivity of trade patterns to relative price changes. The Asian supply chain is more dispersed compared to those in North America or. Europe In the Asian supply chain goods in process cross borders several times including. through the hub Japan before reaching their final destination In contrast in other regions. almost all foreign input is imported directly from the hub the United States in NAFTA and. EU15 in Europe The greater dispersion of production in the Asian supply chain renders it. potentially more vulnerable to disruptions of trade flows whether policy induced such as. preferential regional trade agreements or naturally caused such as the recent earthquake in. The emergence of global supply chains has allowed EMEs to enhance the technology. content of their exports including as inputs embedded in high technology exports of. advanced countries The share of high technology exports has increased remarkably in. China since 1995 boosted by processing trade and with significant imported contributions. from Japan and other Asian countries China is also moving upstream in the value added. chain with imports from China contributing significantly to advanced countries high. technology exports Moreover with China and other EMEs increasing their presence in. sectors traditionally dominated by advanced economies the similarity in export structures. has increased over time and so has competitive pressure. In addition to rebalancing effects changes in relative prices result in important. adjustments in sectoral trade patterns A partial equilibrium approach is used to examine. the impact of relative price changes on trade structures of four key players in global trade. namely China downstream country the Euro Area Japan and the United States upstream. countries First a downstream as opposed to upstream position in a supply chain cushions. the impact of a relative price change on both exports and imports This reflects the higher. foreign content in the downstream country s exports which mitigates the impact of exchange. rate changes Second sectors that respond the most to the exchange rate changes are different. for different countries an appreciation induces an increase in the share of high technology. exports in China and to a lesser extent the Euro Area while a depreciation results in an. increase in the share of medium high technology exports in Japan and the United States. largely driven by changes in the auto sector Finally adjustment in the trade balance takes. place mainly outside of the supply chain as exports to supply chain partners are more. resilient to relative price changes, The growing role of global supply chains is associated with increased trade.
interconnectedness Network based analysis illustrates several trends taking place over the. past decade most notably the emergence of China along with the United States as major. systemically important trading hubs This not only reflects the size of trade but also the. increase in the number of its significant trading partners Importantly there is almost a. perfect overlap between countries hosting both a systemically important trade and financial. centers These countries could constitute a natural focus for risk based surveillance on cross. border spillovers and contagion,I INTRODUCTION1, 1 The global trade landscape has witnessed dramatic shifts over the past several. decades World trade has grown steadily since World War II with the expansion. accelerating over the past decade Despite a post crisis dip the current level of world gross. exports is almost three times that prevailing,in the 1950s Figure 1 With the exception. of commodity price booms in the 1970s and,more recently in 2004 2008 commodity. trade accounted for a declining share of this,growth with the share of noncommodity. trade rising to more than 20 percent of,global GDP in 2008 The expansion in.
global trade was characterized by three,important trends the rise of emerging. market economies EMEs as systemically,important trading partners the growing. importance of regional trade and the shift of,higher technology exports toward dynamic. 2 Trade expansion was further associated with growing trade interconnectedness. Not only has the number of systemically important trading nations increased over time their. trade links have also multiplied A chief contributor is the growing role of global supply. chains in overall trade facilitated by lower tariffs and technology led declines in. transportation and communication costs With vertical specialization production of certain. goods is fragmented into several stages with each stage produced in the most cost effective. location or country As a result goods cross borders several times before being transformed. into final products further increasing trade interconnectedness Outsourcing of production. stages from advanced upstream countries to neighboring EMEs has also supported a shift. in the technology content of exports towards the latter. 3 The aim of this paper is to examine the evolution of these trade patterns and. explore the implications of sectoral linkages for the outlook for global trade Three. approaches are used to investigate trade interconnectedness and the evolution of sectoral. trade patterns network analysis to determine systemically important trading countries input. output based analysis to examine the growth of global supply chains at the aggregate and. sectoral levels and finally a partial equilibrium approach to analyze the implications of. The paper was prepared by a staff team led by Nagwa Riad and comprising Christian Henn Christian. Saborowski Mika Saito Jarkko Turunen Tushara Ekanayake and Nick Young SPR Luca Errico and Alex. Massara STA under the direction of Richard Harmsen Ranil Salgado and Tam Bayoumi. sectoral trade patterns on global rebalancing and the outlook for global trade The analysis. complements ongoing work within the Fund that looks at the adjustment of trade and global. balances at the aggregate level, 4 The paper is structured as follows Section II presents a historical analysis of the. evolution of global trade patterns over the past several decades and their implications for. trade patterns going forward 2 It examines the change in key players in global trade the. increase in trade interconnectedness the growing role of global supply chains and the. change in technology content and export structures across countries 3 The likely impact of. rebalancing by key players on trade patterns at the sectoral level is explored in Section III. through the use of a partial equilibrium approach based on highly disaggregated trade data. and sectoral elasticities The exercise considers a hypothetical change in relative prices in. four systemically important trading partners China the United States Japan and the Euro. Area without explicitly modeling the specific drivers that could induce such relative price. changes Section IV concludes with policy implications. While recognizing the growing contribution of services to global trade the focus of this paper is on. merchandize trade Much of our analysis attempts to shed light on trade patterns and necessitates trade flows on. a bilateral basis which are generally not available for services The focus of the paper is on noncommodity. manufacturing trade which was more impacted by the recent trends whereas commodity trade was generally. less impacted and is less affected by changes in relative income. This paper makes reference to different concepts of Europe in part reflecting data availability limitations but. also appropriateness to the scope of the underlying analysis The concepts used include Euro Area EU15 and. EU accession In some sections the analysis relies on sources that include European countries as three blocks. EU15 EU accession and EFTA countries without allowing for analysis of individual European countries In. other sections reference is made to Europe s largest economy namely Germany with no assumption of. representation for Europe whereas analysis on trade structures and interconnectedness is done at the individual. country level Different groupings include Euro Area Austria Belgium Cyprus Estonia Finland France. Germany Greece Ireland Italy Luxembourg Malta Netherlands Portugal Slovak Republic Slovenia and. Spain EU15 Austria Belgium Denmark Finland France Germany Greece Ireland Italy Luxembourg. Netherlands Portugal Spain Sweden and United Kingdom and EU accession Bulgaria Cyprus Czech. Republic Estonia Hungary Latvia Lithuania Malta Poland Romania Slovak Republic and Slovenia. II THE EVOLVING STRUCTURE OF GLOBAL TRADE,A The Diffusion of Key Players in Global Trade.
5 Emerging market economies have moved from peripheral players to major. centers of global trade Figure 2 shows the evolution of key players in global trade defined. as countries whose trade exports plus imports, represented at least 2 percent of world trade In the. early 1970s trade was largely confined to a handful of. World trade has grown steadily since World War II with the expansion accelerating over the past decade Despite a post crisis dip the current level of world gross exports is almost three times that prevailing in the 1950s Figure 1 With the exception of commodity price booms in the 1970s and more recently in 2004 2008 commodity

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