31/3/2013: World Trade Drivers: policy or simple innovation?

A very important issue of logistics and transport innovation effect on trade flows is tackled in the study by Bernhofen, Daniel M., El-Sahli, Zouheir and Kneller, Richard, titled "Estimating the Effects of the Container Revolution on World Trade" CESifo Working Paper Series No. 4136, February 2013.

[Note: Italics are mine]

From the abstract: "The introduction of containerization triggered complementary technological and organizational changes that revolutionized global freight transport. Despite numerous claims about the importance of containerization in stimulating international trade, econometric estimates on the effects of containerization on trade appear to be missing. Our paper fills this gap in the literature. Our key idea is to exploit time and cross-sectional variation in countries’ adoption of port or railway container facilities to construct a time-varying bilateral technology variable and estimate its effect on explaining variations in bilateral product level trade flows in a large panel for the period 1962-1990."

Per findings: "Our estimates suggest that containerization did not only stimulate trade in containerizable products (like auto parts) but also had complementary effects on non-containerizables (like automobiles). As expected, we find larger effects on North-North trade than on North-South or South-South trade and much smaller effects when ignoring railway containerization. Regarding North-North trade, the cumulative average treatment effects of containerization over a 20 year time period amount to about 700%, can be interpreted as causal, and are much larger than the effects of free trade agreements or the GATT. In a nutshell, we provide the first econometric evidence for containerization to be a driver of 20th century economic globalization."

Now, 700% over 20 years is a massive uplift in what was already a much-advanced trade system (North-North). With South-South and North-South trade flows now rapidly converging in terms of volumes and type of goods traded to those of North-North, I would suspect we will see an equally massive positive impact on these trade flows as well, and as a result on global trade.

The evidence presented in the study is of huge importance. It shows just how impactful can a simple, non-formal-R&D driven innovation can be and it also puts into the context the scope for policy intervention vs organic business-led innovation intervention in delivering market outcomes.

23/1/2013: IMF WEO Update: Euro Area snapshot

In the previous post (link here) I have looked at the headline numbers from the IMF revision to their World Economic Outlook. Now, a quick summary for the Euro area:


"The euro area continues to pose a large downside risk to the global outlook. In particular, risks of prolonged stagnation in the euro area as a whole will rise if the momentum for reform is not maintained. Adjustment efforts in the periphery countries need to be sustained and must be supported by the center, including through full deployment of European firewalls, utilization of the
flexibility offered by the Fiscal Compact, and further steps toward full banking union and greater fiscal integration."

To summarise the forecasts and their revisions:

The above clearly show that the euro area remains the weak point for global growth and that this picture is likely to continue in 2013 and 2014. More importantly, the revisions since October 2012 show that the IMF pessimism about the euro area growth prospects is getting deeper, compared to other economies.

Time stamp

23/1/2013: IMF World Economic Outlook Update

IMF WEO is out just now. Headline reading is:

"Global growth is projected to increase during 2013, as the factors underlying soft global activity are expected to subside."

"However, this upturn is projected to be more gradual than in the October 2012 World Economic 

Outlook (WEO) projections."

"Policy actions have lowered acute crisis risks in the euro area and the United States. But in the euro area, the return to recovery after a protracted contraction is delayed. While Japan has slid into recession, stimulus is expected to boost growth in the near term. At the same time, policies have 

supported a modest growth pickup in some emerging market economies, although others continue to struggle with weak external demand and domestic bottlenecks. If crisis risks do not materialize and financial conditions continue to improve, global growth could be stronger than projected. However, downside risks remain significant, including renewed setbacks in the euro area and risks of excessive near-term fiscal consolidation in the United States. Policy action must urgently address these risks."

On Global growth drivers:

• The IMF expectations are for World Trade Volumes to rise 3.8% in 2013 and 5.5% in 2014, after posting increases of 5.9% in 2011 and 2.8% in 2012. In other words, the average growth rate in 2011-2012 was 4.4% and in 2013-2014 the projection is for the average of 4.7% growth. Not exactly a massively rapid recovery. 
• World Trade Volume forecasts have been revised down -0.7 ppt for 2013 and -0.3 ppt for 2014 compared to october 2012 forecasts, implying that average growth in trade over 2013-2014 was expected to hit 5.15% annually back in October 2012 and this has been brought down now to 4.7%.
• The IMF further predicts exports volumes for Advanced Economies to rise 2.8% in 2013 and 4.5% in 2014, with annual average of 3.7% forecast. This contrast with exports growth of 5.6% in 2011 and 2.1% in 2012 - an annual average of 3.9%. 
• Back in October 2012, the IMF forecast for exports growth in Advanced Economies was for an average rate of growth of 4.25% pa in 2013-2014. This has now been brought down to 3.7%.
• The IMF forecast for exports growth in the Emerging Markets & Developing Economies for 2013 of 5.5% and 2014 of 6.9%, down from 5.7% and 7.1% projections issued back in October 2012. 
• However, in 2011 the growth rate in exports from the Emerging Markets & Developing Economies reached 6.6% and this has fallen to 3.6% in 2012. Thus, 2011-2012 annual average rate of growth was 5.1%, 2013-2014 projection is for 6.2% and this represents a reduction from October 2012 forecast of 6.4%. In other words, in contrast with the Advanced Economies, the Emerging Markets & Developing Economies are expected to accelerate significantly in growth of exports compared to 2011-2012.