Cletus C. Coughlin

English

Research Papers in Economics

May 2003
InternationalEconomicTrends
Views expressed do not necessarily reflect official positions of the Federal Reserve System.
World Trade: Past,
Present, and Future
A
s the figure shows, the world’s volume of mer-
chandise exports (agricultural, mining, and manu-
factured products) increased at an average annual
rate of 6.3 percent from 1950 through 2001; world output
increased at a rate of 3.8 percent. During this period, there
were only four noteworthy declines in merchandise
exports—in 1958, 1975, 1982, and 2001, years when world
output showed little or no growth. As world growth acceler-
ated in 2002 to 3.0 percent, world trade increased by
roughly 2.5 percent, a much slower rate than the average
for 1950-2001. So what does the future hold for world
trade growth?
World trade prospects depend on three key factors—
income growth, reductions in trade barriers, and declines
in transportation costs. Scott Baier and Jeffrey Bergstrand
estimated that, between the late 1950s and the late 1980s,
income growth explained about 67 percent of the average
trade growth of several developed countries, tariff-rate
reductions about 25 percent, and declines in transportation
costs about 8 percent.1
In the April 2003 World Economic Outlook, the
International Monetary Fund projected that world output
would grow 3.2 percent in 2003. If accurate, such a small
increase in world output over 2002 suggests only a small
increase in world trade.
Turning to multilateral trade negotiations, the prospects
are poor for any substantial near-term reductions in trade
barriers. It seems unlikely that the Doha Round of World
Trade Organization (WTO) negotiations will be completed
by 2005, as a deadline for setting ground rules for agri-
cultural talks has come and gone with no agreement.
Neither does it seem likely that regional or bilateral
agreements involving the United States will provide the
impetus for trade barrier reductions. Negotiations involving
the proposed Free Trade Area of the Americas appear to
be progressing, at best, very slowly. Similarly, bilateral
agreements involving the United States are clouded by
delays. For example, a December 2001 agreement with
Chile has not yet even been debated in Congress. Potential
agreements with Morocco, Australia, and the countries of
Central America are moving even more slowly.
Finally, the terrorist attacks of September 11, 2001,
have boosted transport costs. Insurance rates, especially
for shipping in the Middle East, have increased sharply.
Increased scrutiny of shipping containers has also in-
creased costs. According to the Organization for Economic
Cooperation and Development, the costs of additional
security measures could run from 1 to 3 percent of the
value of trade.2 Moreover, additional security measures
cause delays for importers and exporters that further
increase transport costs.
Overall, some acceleration in trade growth can be
expected in the near future. However, the small projected
increase in world output suggests that the acceleration is
likely to be small. Taking a longer perspective, trade growth
will continue to be closely related to world output growth.
It is unclear, however, whether changes in governmental
barriers to trade as well as transportation costs will stimu-
late or retard long-term trade growth.
—Cletus C. Coughlin
1“The Growth of World Trade: Tariffs, Transport Costs, and Income Similarity.”
Journal of International Economics, February 2001, 53, pp. 1-27.
2OECD Economic Outlook, June 2002, No. 71, Chap. 4.
Available on the web at research.stlouisfed.org
–8
–4
0
4
8
12
1951
1954
1957
1960
1963
1966
1969
1972
1975
1978
1981
1984
1987
1990
1993
1996
1999
Growth (% year/year)
World Merchandise Export Growth and GDP Growth,
1950-2001
SOURCE: WTO, International Trade Statistics 2002, <http://www.wto.org/
english/res_e/statis_e/its2002_e/its02_bysubject_e.htm#trends>.
Export Growth
GDP Growth

World trade: past, present, and future

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World trade: past, present, and future

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