Regional integration and the global downturn: impacts and causalities

On the basis of the most up-to-date monthly, quarterly and annual data and using appropriate diagnostic indicators, this project examines changing patterns of trade between countries and country groupings. Given the rapid development of supply chain fragmentation of production, it is important to analyse different categories of trade, trading partners and types of trade flows. A range of diagnostic indicators will be used with a view to exploring their evolution over time for different categories of trade, whether by processing level or industrial classification. The focus will be on identifying the key changes which have impacts on world trade for different regional groupings. A classic study of an earlier period at the global level is Kindleberger (1986) and this will be in part a benchmark.

Building on the preceding, this project will formally analyse the impact of the global downturn in trade on regional groupings using a gravity-style modeling specification. It identifies whether there is any evidence that PTA membership might help mitigate or exacerbate the decline in world trade. It also distinguishes between different regional groupings as clearly the impacts may vary significantly across regions, e.g. changes in intra-EU trade where regional integration has taken a much more formal institutional approach vs. intra East-Asian trade where the process of integration has been more market led. The project also considers any differential impact with regard to different categories of trade such as intermediates vs. final goods, intra-industry trade and vertically fragmented trade.

There is a substantial theoretical and empirical literature on the relationship between trade and processes of regional integration. Perhaps not surprisingly the typical conclusion is that PTAs do increase trade between themselves and with mixed evidence with regard to third countries (Vicard, 2009).