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American Economic Review Vol. 106 No. 11 2016

Trade and the Global Recession

Jonathan Eaton1; Samuel Kortum2; Brent Neiman3; John Romalis4

1 Department of Economics, The Pennsylvania State University, 609 Kern Building, University Park, PA 16802, and NBER (e-mail: ) · 2 Department of Economics, Yale University, Box 208264, New Haven, CT 06520, and NBER (e-mail: ) · 3 Booth School of Business, University of Chicago, 5807 S. Woodlawn Avenue, Chicago, IL 60637, and NBER (e-mail: ) · 4 School of Economics, The University of Sydney, Room 370, Merewether Building (H04), NSW 2006 Australia, and NBER (e-mail: )

open access

Abstract

We develop a dynamic multicountry general equilibrium model to investigate forces acting on the global economy during the Great Recession and ensuing recovery. Our multisector framework accounts completely for countries' trade, investment, production, and GDPs in terms of different sets of shocks. Applying the model to 21 countries, we investigate the 29 percent drop in world trade in manufactures during the period 2008–2009. A shift in final spending away from tradable sectors, largely caused by declines in durables investment efficiency, accounts for most of the collapse in trade relative to GDP. Shocks to trade frictions, productivity, and demand play minor roles.

DOI
10.1257/aer.20101557
Volume
106
Issue
11
Pages
3401-3438
Language
en
Sources
bibtex:phds-export.bib openalex crossref

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