European Integration in a Global Economy
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European Integration in a Global Economy

CESEE and the Impact of China and Russia

Edited by Ewald Nowotny, Peter Mooslechner and Doris Ritzberger-Grünwald

The expert contributors focus on global imbalances and accompanying policy challenges, competitiveness and trade, the sustainability of current growth strategies, and banking and financial stability in the light of the global economic and financial crisis. They provide a multi-disciplinary assessment, combining the views of high-ranking central bankers, policymakers, commercial bankers and academics, and demonstrate that a broad view of European economic integration is crucial given that spillovers and contagion were major issues of the recent economic crisis.
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Chapter 9: Global trade, regional trade and emerging Europe


Global trade fell during the global economic and financial crisis at a pace unseen since the 1930s. While trade adjusted mostly in volume terms in the countries mainly exporting manufactured goods, commodity exporters experienced a sharp drop in their terms of trade. In both cases, demand came under pressure because of the synchronized fall in export value on top of a sharp drop in the value of assets. The fall in demand was a major factor behind the fall in world trade. Still, the fall in aggregate demand alone appears insufficient to explain the size and steepness of the fall in world trade. As a matter of fact, the elasticity of trade to gross domestic product (GDP) was the highest in the post-World War II period. Other explanatory factors are therefore needed. One of these is the specific effect the financial crisis had on trade in capital goods, a category that has a relatively large share in traded goods. This is the composition effect. While manufacturing has a high share in traded goods, it is also a sector that is vulnerable to the (non-)availability of finance for its working capital because of an increasingly high degree of vertical specialization in world production. The segmentation of the production chain is likely to have made this chain more reliant on external finance, more vulnerable to volatility in financial markets including exchange rate volatility, and may have increased its total need of financing for working capital. Also, trade finance was probably a contributing factor,2 even if it is hard to determine whether demand or supply factors prevailed in the decline in trade finance.

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