Trade, (de)globalization and the distance puzzle

Escaith, Hubert (2023): Trade, (de)globalization and the distance puzzle.

Abstract

Talks of deglobalization after the global financial crisis of 2008─2009 intensified in recent years due to bilateral trade wars and the disruption of supply chains during the COVID-19 pandemic. Deglobalization is often associated to a shortening of the supply chains through reshoring and nearshoring, entailing smaller geographical distance travelled by traded goods. This paper proposes a new methodology to analyse the evolution of distance through time, while controlling for the effect of the geographical distribution of exporters and importers linked, inter alia, with the growing weight of large emerging countries in the world economy and the expansion of South-South trade. The new indicator, rooted in trade empirics, operational research and information theory, allows to isolate the endogenous effect of changes in the geographical distribution of supply and demand (a structural effect) to estimate changes in the appetite to trade with distant countries (the globalization effect). It also provides information on geographical diversification that is not captured through more traditional trade indicators. Taking into consideration the rise of Global Value Chains, the analysis is applied to both gross and value-added trade data for a selection of goods and services sectors between 1995 and 2020. We find that it is premature to conclude that global trade has been suffering a deglobalization trend, at least up to 2018. Nonetheless, the situation is heterogeneous between small and large countries and across sectors and regions.

• Item Type: MPRA Paper
• Language: English
• Keywords: Entropy; non-parametric gravity; index number; structural decomposition; trade slowdown and nearshoring
• Subjects: C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C43 - Index Numbers and Aggregation; F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade; F - International Economics > F6 - Economic Impacts of Globalization

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