Trade Liberalization or Oil Shocks: Which Explains Structural Breaks in International Trade Ratios?

Abstract

Ben-David and Papell's (1997) tests for structural breaks in international trade ratios over the post-WWII period revealed that trade ratios exhibited structural breaks in their paths and that postbreak trade averages exceeded prebreak averages. They attributed these breaks to trade liberalization policies executed during the postwar period. We reevaluate their results by comparing the postbreak trade ratios with extrapolated ratios based on the prebreak trend, and testing for structural breaks in the relative prices of imports (exports). We find that oil shocks rather than trade liberalization were the major factor behind the structural breaks in trade ratios.International trade, Trade Liberalization, Structural change, Oil shocks, Kennedy Round