Trade and the Global Recession
Jonathan Eaton, Samuel Kortum, Brent Neiman, John Romalis
American Economic Review · 2016 · Volume 106 · Issue 11
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.
Keywords
Investment, Capital, Intangible Capital, Capacity, Business Fluctuations, Cycles, Trade: General, International Business Cycles
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