According To The Lecture, About How Much Does The Service Sector Contribute To The U.s. Economy?

All our charts on Trade and Globalization

Trade has changed the world economy

Trade has grown remarkably over the last century

The integration of national economies into a global economic system has been one of the about important developments of the terminal century. This process of integration, often called Globalization, has materialized in a remarkable growth in trade between countries.

The chart here shows the value of earth exports over the catamenia 1800-2014. These estimates are in constant prices (i.east. have been adjusted to account for aggrandizement) and are indexed at 1913 values.

This chart shows an extraordinary growth in international trade over the last couple of centuries: Exports today are more 40 times larger than in 1913.

You can click on the choice marked 'Linear', on pinnacle of the vertical axis, to change into a logarithmic scale. This will aid yous see that, over the long run, growth has roughly followed an exponential path.

Trade has grown more than than proportionately with Gross domestic product

The chart higher up shows how much more merchandise we have today relative to a century ago. Only what about merchandise relative to total economic output?

Over the terminal couple of centuries the globe economy has experienced sustained positive economic growth, and so looking at changes in merchandise relative to Gdp offers another interesting perspective.

The next chart plots the value of trade in goods relative to Gross domestic product (i.due east. the value of trade merchandise as a share of global economic output).

Upwards to 1870, the sum of worldwide exports deemed for less than 10% of global output. Today, the value of exported goods around the world is close to 25%. This shows that over the last hundred years of economic growth, there has been more than proportional growth in global trade.

(NB. In this chart you can add together countries past choosing the pick on the lesser left; or you can compare countries around the world past clicking on 'Map' on the chart.)

Today merchandise is a fundamental part of economic activity everywhere

In today's global economic system, countries exchange not only final products, but also intermediate inputs. This creates an intricate network of economic interactions that cover the whole world.

The interactive data visualization, created by the London-based data visualisation studio Kiln and the UCL Free energy Plant, gives united states an insight into the circuitous nature of trade. It plots the position of cargo ships across the oceans.

Trade generates efficiency gains

The raw correlation between trade and growth

Over the last couple of centuries the world economy has experienced sustained positive economical growth, and over the same period, this process of economic growth has been accompanied by even faster growth in global trade.

In a similar way, if we look at state-level data from the last half century we find that in that location is as well a correlation between economic growth and trade: countries with higher rates of Gdp growth besides tend to take college rates of growth in merchandise every bit a share of output. This basic correlation is shown in the chart here, where we plot average annual change in real GDP per capita, against growth in trade (average annual change in value of exports as a share of GDP).^ane

Is this statistical association between economical output and trade causal?

Among the potential growth-enhancing factors that may come from greater global economic integration are: Contest (firms that fail to adopt new technologies and cut costs are more likely to fail and to be replaced past more dynamic firms); Economies of scale (firms that can export to the earth face larger demand, and under the right conditions, they can operate at larger scales where the price per unit of product is lower); Learning and innovation (firms that trade proceeds more experience and exposure to develop and prefer technologies and industry standards from foreign competitors).²

Are these mechanisms supported by the data? Let's take a await at the available empirical prove.

Causality: Evidence from cross-country differences in trade, growth and productivity

When information technology comes to bookish studies estimating the impact of trade on Gross domestic product growth, the most cited paper is Frankel and Romer (1999).³

In this report, Frankel and Romer used geography as a proxy for trade, in guild to gauge the impact of trade on growth. This is a classic example of the so-called instrumental variable approach. The idea is that a state'south geography is fixed, and mainly affects national income through trade. So if we discover that a country'southward distance from other countries is a powerful predictor of economic growth (afterwards accounting for other characteristics), and so the conclusion is drawn that it must be because merchandise has an outcome on economical growth. Following this logic, Frankel and Romer find evidence of a stiff touch of trade on economical growth.

Other papers accept applied the same approach to richer cross-land data, and they have constitute similar results. A key example is Alcalá and Ciccone (2004).^four

This body of evidence suggests trade is indeed one of the factors driving national average incomes (Gdp per capita) and macroeconomic productivity (Gdp per worker) over the long run.⁵

Causality: Bear witness from changes in labor productivity at the firm level

If trade is causally linked to economical growth, nosotros would wait that trade liberalization episodes also atomic number 82 to firms condign more productive in the medium, and even short run. At that place is evidence suggesting this is oftentimes the instance.

Pavcnik (2002) examined the furnishings of liberalized trade on plant productivity in the instance of Republic of chile, during the tardily 1970s and early 1980s. She institute a positive bear upon on business firm productivity in the import-competing sector. And she also found evidence of aggregate productivity improvements from the reshuffling of resource and output from less to more than efficient producers. ⁶

Bloom, Draca and Van Reenen (2016) examined the affect of rising Chinese import competition on European firms over the flow 1996-2007, and obtained similar results. They found that innovation increased more in those firms near affected by Chinese imports. And they plant bear witness of efficiency gains through two related channels: innovation increased and new existing technologies were adopted inside firms; and aggregate productivity also increased because employment was reallocated towards more technologically advanced firms.^seven

Wrapping up: Trade does generate efficiency gains

On the whole, the bachelor evidence suggests trade liberalization does improve economic efficiency. This testify comes from different political and economic contexts, and includes both micro and macro measures of efficiency.

This result is important, considering information technology shows that there are gains from trade. But of course efficiency is not the merely relevant consideration here. Equally we discuss in a companion blog post, the efficiency gains from merchandise are not mostly every bit shared past everyone. The evidence from the bear on of trade on firm productivity confirms this: "reshuffling workers from less to more efficient producers" means closing down some jobs in some places. Considering distributional concerns are real information technology is important to promote public policies – such as unemployment benefits and other safety-net programs – that help redistribute the gains from trade.

The conceptual link betwixt merchandise and household welfare

When a country opens upwards to merchandise, the demand and supply of goods and services in the economy shift. As a upshot, local markets respond, and prices change. This has an bear on on households, both as consumers and as wage earners.

The implication is that trade has an impact on everyone. It's not the example that the effects are restricted to workers from industries in the trade sector; or to consumers who buy imported goods. The outcome of merchandise extends to everyone because markets are interlinked, and then imports and exports have knock-on effects on all prices in the economy, including those in non-traded sectors.

Economists usually distinguish between "general equilibrium consumption effects" (i.east. changes in consumption that arise from the fact that merchandise affects the prices of non-traded goods relative to traded goods) and "general equilibrium income effects" (i.e. changes in wages that ascend from the fact that trade has an touch on the need for specific types of workers, who could be employed in both the traded and not-traded sectors).

Because all these complex interrelations, information technology's non surprising that economic theories predict that not anybody volition benefit from international trade in the aforementioned manner. The distribution of the gains from trade depends on what dissimilar groups of people eat, and which types of jobs they have, or could accept.

(NB. You can read more about these economic concepts, and the related predictions from economic theory, in Affiliate xviii of the textbook The Economy: Economics for a Irresolute World.)

The link between merchandise, jobs and wages

Show from Chinese imports and their touch on on factory workers in the US

The near famous study looking at this question is Autor, Dorn and Hanson (2013): "The China syndrome: Local labor marketplace effects of import competition in the United States".⁸

In this paper, Autor and coauthors looked at how local labor markets changed in the parts of the state most exposed to Chinese competition, and they plant that rising exposure increased unemployment, lowered labor force participation, and reduced wages. Additionally, they found that claims for unemployment and healthcare benefits also increased in more merchandise-exposed labor markets.

The visualization here is one of the key charts from their paper. It's a scatter plot of cross-regional exposure to rising imports, confronting changes in employment. Each dot is a small region (a 'commuting zone' to exist precise). The vertical position of the dots represents the percent change in manufacturing employment for working historic period population; and the horizontal position represents the predicted exposure to rise imports (exposure varies beyond regions depending on the local weight of unlike industries).

The trend line in this nautical chart shows a negative relationship: more exposure goes together with less employment. There are large deviations from the trend (at that place are some low-exposure regions with large negative changes in employment); but the paper provides more sophisticated regressions and robustness checks, and finds that this human relationship is statistically significant.

This result is important because information technology shows that the labor market adjustments were large. Many workers and communities were affected over a long menses of fourth dimension.⁹

But it's besides important to keep in mind that Autor and colleagues are only giving usa a fractional perspective on the total outcome of trade on employment. In particular, comparing changes in employment at the regional level misses the fact that firms operate in multiple regions and industries at the same time. Indeed, Ildikó Magyari recently found evidence suggesting the Chinese merchandise stupor provided incentives for The states firms to diversify and reorganize production.¹⁰

So companies that outsourced jobs to China ofttimes ended up endmost some lines of business, but at the same time expanded other lines elsewhere in the Us. This means that job losses in some regions subsidized new jobs in other parts of the country.

On the whole, Magyari finds that although Chinese imports may have reduced employment within some establishments, these losses were more than offset by gains in employment inside the same firms in other places. This is no consolation to people who lost their task. But it is necessary to add this perspective to the simplistic story of "trade with China is bad for United states of america workers".

Exposure to rising Chinese imports and changes in employment across local labor markets in the The states (1999-2007) – Autor, Dorn and Hanson (2013)

Evidence from the expansion of trade in Republic of india and the bear on on poverty reductions

Another important paper in this field is Topalova (2010): "Gene immobility and regional impacts of trade liberalization: Evidence on poverty from Republic of india".^xi

In this paper Topalova looks at the impact of trade liberalization on poverty across different regions in India, using the sudden and extensive change in India's trade policy in 1991. She finds that rural regions that were more exposed to liberalization, experienced a slower pass up in poverty, and had lower consumption growth.

In the assay of the mechanisms underlying this consequence, Topalova finds that liberalization had a stronger negative impact among the least geographically mobile at the lesser of the income distribution, and in places where labor laws deterred workers from reallocating across sectors.

The evidence from India shows that (i) discussions that merely look at "winners" in poor countries and "losers" in rich countries miss the point that the gains from merchandise are unequally distributed within both sets of countries; and (two) context-specific factors, like worker mobility beyond sectors and geographic regions, are crucial to understand the impact of trade on incomes.

Testify from other studies

Donaldson (2018) uses archival information from colonial India to estimate the touch on of Bharat's vast railroad network. He finds railroads increased trade, and in doing so they increased real incomes (and reduced income volatility).¹²
Porto (2006) looks at the distributional effects of Mercosur on Argentine families, and finds this regional trade agreement led to benefits across the entire income distribution. He finds the effect was progressive: poor households gained more eye-income households, considering prior to the reform, merchandise protection benefitted the rich disproportionately.^thirteen
Trefler (2004) looks at the Canada-U.s.a. Complimentary Trade Agreement and finds there was a group who bore "adjustment costs" (displaced workers and struggling plants) and a grouping who enjoyed "long-run gains" (consumers and efficient plants). ¹⁴

The link between trade and the price of living

The fact that trade negatively affects labor market opportunities for specific groups of people does non necessarily imply that trade has a negative aggregate effect on household welfare. This is because, while trade affects wages and employment, it besides affects the prices of consumption goods. And so households are affected both as consumers and equally wage earners.

Almost studies focus on the earnings aqueduct, and try to approximate the impact of trade on welfare by looking at how much wages can buy, using as reference the irresolute prices of a fixed basket of goods.

This arroyo is problematic because information technology fails to consider welfare gains from increased product variety, and obscures complicated distributional issues such as the fact that poor and rich individuals consume different baskets and then they benefit differently from changes in relative prices.¹⁵

Ideally, studies looking at the impact of merchandise on household welfare should rely on fine-grained data on prices, consumption and earnings. This is the approach followed in Atkin, Faber, and Gonzalez-Navarro (2018): "Retail globalization and household welfare: Evidence from Mexico".¹⁶

Atkin and coauthors utilise a uniquely rich dataset from Mexico, and observe that the inflow of global retail bondage led to reductions in the incomes of traditional retail sector workers, simply had niggling impact on average municipality-level incomes or employment; and led to lower costs of living for both rich and poor households.

The chart hither shows the estimated distribution of total welfare gains across the household income distribution (the light-greyness lines correspond to confidence intervals). These are proportional gains, and are expressed as percent of initial household income.

Every bit we can see, there is a net positive welfare upshot across all income groups; merely these improvements in welfare are regressive, in the sense that richer households proceeds proportionally more than (nigh vii.5 percent gain compared to 5 per centum).¹⁷

Evidence from other countries confirms this is not an isolated case – the expenditure aqueduct actually seems to exist an important and understudied source of household welfare. Giuseppe Berlingieri, Holger Breinlich, Swati Dhingra, for example, investigate the consumer benefits from trade agreements implemented by the EU between 1993 and 2013; and they find that these trade agreements increased the quality of bachelor products, which translated into a cumulative reduction in consumer prices equivalent to savings of €24 billion per year for EU consumers.^xviii

Distribution of total household welfare gains from the arrival of foreign retail chains in Mexico – Atkin, Faber, and Gonzalez-Navarro (2018)

Wrapping up: Internet welfare effects and implications

The available evidence shows that, for some groups of people, merchandise has a negative effect on wages and employment opportunities; and at the aforementioned time it has a big positive effect via lower consumer prices and increased availability of products.

Two points are worth emphasising.

For some households, the net effect is positive. But for some households that's not the case. In particular, workers who lose their job can be afflicted for extended periods of time, so the positive issue via lower prices is not enough to compensate them for the reduction in earnings.

On the whole, if we aggregate changes in welfare across households, the net effect is usually positive. Merely this is hardly a alleviation for those who are worse off.

This highlights a complex reality: There are aggregate gains from trade, but at that place are also real distributional concerns. Fifty-fifty if trade is not a major driver of income inequalities, information technology'due south important to keep in mind that public policies, such as unemployment benefits and other safety-cyberspace programs, can and should help redistribute the gains from trade.

The "two waves of globalization"

The first "wave of globalization" started in the 19th century, the second one afterwards WW2

The following visualization presents a compilation of bachelor merchandise estimates, showing the evolution of world exports and imports as a share of global economic output.

This metric (the ratio of total merchandise, exports plus imports, to global GDP) is known as the 'openness index'. The college the index, the higher the influence of merchandise transactions on global economical activity.¹⁹

As nosotros tin can run across, until 1800 there was a long period characterized past persistently low international trade – globally the alphabetize never exceeded 10% before 1800. This and then changed over the grade of the 19th century, when technological advances triggered a period of marked growth in world trade – the and so-called 'first wave of globalization'.

The get-go wave of globalization came to an end with the beginning of the First World State of war, when the reject of liberalism and the rise of nationalism led to a slump in international trade. In the chart nosotros come across a big drop in the interwar period.

Afterwards the Second World State of war trade started growing again. This new – and ongoing – moving ridge of globalization has seen international trade grow faster than ever earlier. Today the sum of exports and imports across nations amounts to more than 50% of the value of total global output.

(NB. Klasing and Milionis (2014), which is 1 of the sources in the nautical chart, published an additional set of estimates nether an alternative specification. Similarly, for the catamenia 1960-2015, the Globe Bank's World Development Indicators published an alternative set up of estimates, which are similar but non identical to those included from the Penn Globe Tables (9.ane). Y'all find all these alternative overlapping sources in this comparing chart.)

Before the first wave of globalization, trade was driven mostly by colonialism

Over the early modern period, transoceanic flows of appurtenances between empires and colonies accounted for an of import role of international trade. The post-obit visualizations provides a comparison of intercontinental trade, in per capita terms, for unlike countries.

As we tin see, intercontinental merchandise was very dynamic, with volumes varying considerably across time and from empire to empire.

Leonor Freire Costa, Nuno Palma, and Jaime Reis, who compiled and published the original data shown here, fence that trade, likewise in this period, had a substantial positive impact on the economic system.²⁰

The first wave of globalization was marked by the rise and collapse of intra-European trade

The post-obit visualization shows a detailed overview of Western European exports by destination. Figures correspond to export-to-GDP ratios (i.due east. the sum of the value of exports from all Western European countries, divided by total GDP in this region). Using the selection labeled 'relative', at the bottom of the chart, you can meet the proportional contribution of each region to total Western European exports.

This chart shows that growth in Western European trade throughout the 19th century was largely driven by trade inside the region: In the period 1830-1900 intra-European exports went from one% of GDP to 10% of GDP; and this meant that the relative weight of intra-European exports doubled over the menstruum (in the 'relative' view you tin encounter the irresolute limerick of exports by destination, and you can check that the weight of intra-European trade went from about ane third to about two thirds over the period). Just this procedure of European integration then collapsed sharply in the interwar menstruum.

Subsequently the Second Earth War trade inside Europe rebounded, and from the 1990s onwards exceeded the highest levels of the beginning wave of globalization. In addition Western Europe and so started to increasingly trade with Asia, the Americas, and to a smaller extent Africa and Oceania.

The next graph, from Broadberry and O'Rourke (2010)²¹, shows another perspective on the integration of the global economy and plots the development of three indicators measuring integration across different markets – specifically goods, labor, and capital markets.

The indicators in this chart are indexed, so they show changes relative to the levels of integration observed in 1900. This gives us some other viewpoint to understand how quickly global integration collapsed with the two World Wars.

(NB. Integration in the goods markets is measured here through the 'trade openness index', which is defined by the sum of exports and imports as share of GDP. In this interactive nautical chart you can explore trends in trade openness over this menstruation for a selection of European countries.)

The second moving ridge of globalization was enabled by technology

The globe-wide expansion of trade after the 2nd World War was largely possible because of reductions in transaction costs stemming from technological advances, such as the evolution of commercial civil aviation, the improvement of productivity in the merchant marines, and the democratization of the telephone as the principal style of communication. The visualization shows how, at the global level, costs across these three variables have been going down since 1930.

The reductions in transaction costs had an bear on, not only on the volumes of merchandise, but also on the types of exchanges that were possible and profitable.

The first moving ridge of globalization was characterized by inter-industry trade. This ways that countries exported appurtenances that were very different to what they imported – England exchanged machines for Australian wool and Indian tea. As transaction costs went down, this inverse. In the second wave of globalization we are seeing a rise in intra-manufacture trade (i.e. the commutation of broadly similar goods and services is becoming more and more mutual). France, for case, at present both imports and exports machines to and from Germany.

The following visualization, from the UN World Evolution Study (2009), plots the fraction of total world trade that is accounted for by intra-manufacture trade, by type of appurtenances. As we can run across, intra-industry trade has been going up for master, intermediate and last appurtenances.

This pattern of trade is of import because the scope for specialization increases if countries are able to exchange intermediate appurtenances (due east.chiliad. automobile parts) for related final goods (east.1000. cars).

Two centuries of trade, country by country

Above we took a look at the broad global trends over the terminal two centuries. Let'south now zoom in on country-level trends over this long and dynamic period.

This chart plots estimates of the value of trade in goods, relative to total economical activity (i.eastward. export-to-Gross domestic product ratios).

These historical estimates plain come with a large margin of error (in the measurement section below we discuss the data limitations); yet they offering an interesting perspective.

Yous can add more series by clicking on the option ' Add country '. Each country tells a unlike story. If you add the Netherlands, for example, y'all will see how of import the Dutch Aureate Age was.

(NB. Here is the aforementioned chart but showing imports, rather than exports.)

Irresolute trade partners

In the next nautical chart we plot, state past country, the regional breakdown of exports. India is shown by default, but yous can switch state using the option 'Change entity'.

Using the option 'relative', at the lesser of the nautical chart, y'all tin see the proportional contribution of purchases from each region. For example: We encounter that 48% of the total value of Indian exports in 2014 went to Asian countries.

This gives us an interesting perspective on the changing nature of merchandise partnerships. In Bharat, we meet the rising importance of trade with Africa – this is a design that we discuss in more detail beneath.

How much exercise countries merchandise?

Trade openness around the earth

The so-called merchandise openness index is an economical metric calculated every bit the ratio of country's full trade (the sum of exports plus imports) to the land's gross domestic production.

This metric gives us an idea of integration, considering it captures all incoming and approachable transactions. The higher the index the larger the influence of trade on domestic economic activities.

The visualization presents a world map showing the trade openness alphabetize country past country. You tin explore country-specific fourth dimension series past clicking on a country, or past using the 'Chart' tab.

For whatsoever given year, we meet that there is a lot of variation across countries. The weight of trade in the US economy, for example, is much lower than in other rich countries.

If y'all printing the play button in the map, you can come across changes over time. This reveals that, despite the great variation between countries, there is a common trend: Over the last couple of decades trade openness has gone up in most countries.

Exports and imports in existent dollars

Expressing trade values every bit a share of Gross domestic product tells us the importance of merchandise in relation to the size of economic activity. Let's now take a look at trade in monetary terms – this tells us the importance of trade in accented, rather than relative terms.

The nautical chart shows the value of exports (goods plus services) in dollars, state by country. All estimates are expressed in constant 2010 dollars (i.e. all values take been adjusted to correct for inflation).

The master takeaway here are the land-specific trends, which are positive and more pronounced than in the charts showing shares of Gross domestic product. This is non surprising: most countries today produce more than a couple of decades ago; and at the same fourth dimension they trade more than of what they produce.

You tin plot trends past region using the option ' Add country '.

(NB. Hither is the same chart, but showing imports rather than exports.)

What do countries merchandise?

Trade in goods vs Merchandise in services

Merchandise transactions include goods (tangible products that are physically shipped beyond borders by road, rail, water, or air) and services (intangible commodities, such as tourism, financial services, and legal advice).

Many traded services brand merchandise merchandise easier or cheaper—for instance, shipping services, or insurance and fiscal services.

Trade in appurtenances has been happening for millenia; while trade in services is a relatively recent phenomenon.

In some countries services are today an important commuter of trade: In the UK services business relationship for most 45% of all exports; and in the Commonwealth of the bahamas almost all exports are services (about 87% in 2016).

In other countries the opposite is true: In Nigeria and Venezuela services deemed for effectually two% and three% of exports, respectively, in 2014.

Globally, merchandise in goods accounts for the majority of trade transactions. But as this chart shows, the share of services in total global exports has increased, from 17% in 1979 to 24% in 2017.

(NB. This interactive chart shows merchandise in services as share of Gdp across countries and regions.)

Domestic vs Foreign value added in exports

Firms around the world import appurtenances and services, in gild to use them as inputs to produce goods and services that are later exported. The imported goods and services incorporated in a land's exports are a key indicator of economic integration – they tell us something most 'global value bondage', where the dissimilar stages of the product process are located across unlike countries.

The nautical chart, from UNCTAD's World Investment Report 2018 – Investment and New Industrial Policies, shows trends of gross exports, cleaved down into domestic and strange value added. That is, the share of the value of exports that comes from foreign inputs.

Today, about 30% of the value of global exports comes from foreign inputs. In 1990, the share was about 25%.

Foreign value added in merchandise peaked in 2010–2012 after two decades of continuous increase. This is consequent with the fact that, afterward the global fiscal crunch, at that place has been a slowdown in the rate of growth of trade in goods and services, relative to global GDP. This is a sign that global integration stalled later on the financial crisis.

(NB. The integration of global value chains is a common source of measurement error in trade data, because it makes information technology difficult to correctly aspect the origin and destination of goods and services. We discuss this in more detail below.)

How are trade partnerships irresolute?

Bilateral trade is becoming increasingly mutual

If we consider all pairs of countries that appoint in trade effectually the world, nosotros find that in the majority of cases, there is a bilateral human relationship today: Nearly countries that export goods to a land, also import goods from the same land.

The interactive visualization shows this.²³

In this chart, all possible state pairs are partitioned into three categories: the pinnacle portion represents the fraction of country pairs that do not trade with one-another; the middle portion represents those that trade in both directions (they export to one-some other); and the bottom portion represents those that trade in one direction but (ane country imports from, only does not export to, the other country).

As we can encounter, bilateral trade is becoming increasingly common (the center portion has grown essentially). But information technology remains true that many countries nevertheless exercise not merchandise with each other at all (in 2014 near 25% of all country-pairs recorded no trade).

South-South trade is becoming increasingly important

The visualization here shows the share of world merchandise trade that corresponds to exchanges between today's rich countries and the rest of the world.

The 'rich countries' in this nautical chart are: Australia, Republic of austria, Belgium, Canada, Cyprus, Kingdom of denmark, Republic of finland, French republic, Federal republic of germany, Greece, Iceland, Ireland, Israel, Italy, Japan, Luxembourg, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, Great britain and the United States. 'Non-rich countries' are all the other countries in the world.

Equally nosotros can see, up until the Second World War the majority of merchandise transactions involved exchanges betwixt this small grouping of rich countries. But this has been changing quickly over the concluding couple of decades, and today trade between non-rich countries is just equally important as merchandise between rich countries.

In the past two decades China has been a key driver of this dynamic: the UN Human Development Report (2013) estimates that between 1992 and 2011, China'due south trade with Sub-Saharan Africa rose from $1 billion to more than $140 billion.

(NB. Here is a stacked area chart showing the total composition of exports past partnership. Information technology's the same data, simply plotted with stacked series.)

The majority of preferential trade agreements are between emerging economies

The last few decades accept not simply seen an increase in the volume of international trade, only likewise an increase in the number of preferential trade agreements through which exchanges take identify. A preferential trade agreement is a trade pact that reduces tariffs betwixt the participating countries for certain products.

The visualization hither shows the evolution of the cumulative number of preferential trade agreements that are in force beyond the globe, according to the Earth Merchandise Organization (WTO). These numbers include notified and non-notified preferential agreements (the source reports that but about two-thirds of the agreements currently in force have been notified to the WTO), and are disaggregated by land groups.

This effigy shows the increasingly important function of trade between developing countries (S-South merchandise), vis-a-vis trade between developed and developing countries (Due north-South trade). In the late 1970s, North-Southward agreements accounted for more than half of all agreements – in 2010, they accounted for almost ane quarter. Today, the majority of preferential trade agreements are betwixt developing economies.

Number of preferential trade agreements in force by country group, 1950-2010 – Figure B1 in WTO Merchandise Written report (2011)

Trading patterns accept been changing rapidly in middle income countries

The increment in trade among emerging economies over the last half century has been accompanied past an important change in the composition of exported appurtenances in these countries.

The next visualization plots the share of food exports in each country's total exported merchandise. These figures, produced by the World Banking company, correspond to the Standard International Merchandise Nomenclature, in which 'food' includes, among other goods, live animals, beverages, tobacco, coffee, oils, and fats.

Two points stand out. First, there has been a substantial subtract in the relative importance of nutrient exports since 1960s in most countries (although globally in the last decade it has gone up slightly). And second, this subtract has been largest in centre income countries, particularly in Latin America. Colombia is a notable case in point: food went from 77% of merchandise exports in 1962, to 15.9% in 2015.

Regarding levels, equally one would expect, in high income countries food still accounts for a much smaller share of merchandise exports than in about low- and middle-income-countries.

Explaining trade patterns: Theory and Evidence

Comparative advantage
Trade diminishes with distance
Institutions
Increasing returns to scale

Comparative advantage

Theory: What is 'comparative advantage' and why does information technology thing to sympathise merchandise?

In economic theory, the 'economic cost' – or the 'opportunity cost' – of producing a proficient is the value of everything you need to give up in guild to produce that skillful.

Economical costs include physical inputs (the value of the stuff yous use to produce the good), plus forgone opportunities (when yous allocate scarce resources to a task, you surrender culling uses of those resources).

A land or a person is said to have a 'comparative advantage' if they have the ability to produce something at a lower opportunity cost than their trade partners.

The forgone opportunities of production are key to sympathise this concept. It is precisely this that distinguishes absolute reward from comparative advantage.

To see the difference between comparative and absolute advantage, consider a commercial aviation airplane pilot and a bakery. Suppose the pilot is an splendid chef, and she tin bake only besides, or even better than the baker. In this case, the pilot has an absolute advantage in both tasks. Yet the baker probably has a comparative reward in baking, considering the opportunity price of baking is much college for the pilot.

The freely bachelor economics textbook The Economy: Economic science for a Irresolute World explains this as follows: "A person or country has comparative advantage in the product of a particular skillful, if the toll of producing an additional unit of that practiced relative to the price of producing another good is lower than another person or country'due south toll to produce the same two goods."

At the private level, comparative advantage explains why you might want to delegate tasks to someone else, even if you can do those tasks amend and faster than them. This may audio counterintuitive, but it is non: If yous are good at many things, information technology means that investing time in i task has a high opportunity price, because yous are not doing the other amazing things you could be doing with your time and resources. So, at least from an efficiency signal of view, you should specialize on what you are all-time at, and consul the rest.

The same logic applies to countries. Broadly speaking, the principle of comparative advantage postulates that all nations tin gain from trade if each specializes in producing what they are relatively more efficient at producing, and import the remainder: "do what you lot do all-time, import the residue".²⁴

In countries with relative affluence of certain factors of production, the theory of comparative reward predicts that they volition export goods that rely heavily in those factors: a land typically has a comparative advantage in those appurtenances that use more intensively its abundant resource. Colombia exports bananas to Europe because it has comparatively abundant tropical weather. Under autarky, Colombia would detect it cheap to produce bananas relative to east.one thousand. apples.

Show: Is there empirical back up for comparative-reward theories of trade?

The empirical evidence suggests that the principle of comparative advantage does help explain trade patterns. Bernhofen and Brown (2004)²⁵, for instance, provide evidence using the experience of Japan. Specifically, they exploit Japan'due south dramatic nineteenth-century motility from a state of near complete isolation to wide trade openness.

The graph here shows the cost changes of the key tradable goods after the opening upwardly to trade. It presents a scatter diagram of the net exports in 1869 graphed in relation to the alter in prices from 1851–53 to 1869. Every bit we can run across, this is consequent with the theory: after opening to merchandise, the relative prices of major exports such as silk increased (Nihon exported what was cheap for them to produce and which was valuable abroad), while the relative cost of imports such as sugar declined (they imported what was relatively more hard for them to produce, just was inexpensive away).

Internet exports and cost changes for 1869, Japan – Effigy 4 in Bernhofen and Brown (2014)²⁶

Merchandise diminishes with distance

The resistance that geography imposes on merchandise has long been studied in the empirical economics literature – and the master decision is that merchandise intensity is strongly linked to geographic distance.

The visualization, from Eaton and Kortum (2002)²⁷, graphs 'normalized import shares' against distance. Each dot represents a land-pair from a set of xix OECD countries, and both the vertical and horizontal axis are expressed on logarithmic scales.

The 'normalized import shares' in the vertical axis provide a mensurate of how much each land imports from different partners (see the paper for details on how this is calculated and normalised), while distance in the horizontal axis corresponds to the distance between primal cities in each country (run across the paper and references therein for details on the list of cities). As we can run across, at that place is a stiff negative relationship. Trade diminishes with distance. Through econometric modeling, the paper shows that this relationship is not simply a correlation driven by other factors: their findings propose that distance imposes a pregnant bulwark to trade.

The fact that trade diminishes with distance is besides corroborated past data of trade intensity within countries. The visualization here shows, through a serial of maps, the geographic distribution of French firms that export to France'southward neighboring countries. The colors reflect the percentage of firms which export to each specific state. As we tin run across, the share of firms exporting to each of the corresponding neighbors is largest shut to the border. The authors also show in the paper that this pattern holds for the value of private-firm exports – trade value decreases with distance to the edge.

Institutions

Conducting international trade requires both financial and non-financial institutions to support transactions. Some of these institutions are adequately obvious (due east.g. law enforcement); but some are less obvious. For example, the evidence shows that producers in exporting countries often need credit in guild to engage in trade.

The besprinkle plot, from Manova (2013)³⁰, shows the correlation betwixt levels in individual credit (specifically exporters' individual credit as a share of Gdp) and exports (average log bilateral exports across destinations and sectors). Every bit can exist seen, financially developed economies – those with more dynamic individual credit markets – typically outperform exporters with less evolved financial institutions.

Other studies have shown that state-specific institutions, like the cognition of foreign languages, for instance, are besides of import to promote foreign relative to domestic trade (see Melitz 2008³¹).

Cantankerous-country correlation betwixt private credit and exports – Figure 2 in Manova (2013)³²

Increasing returns to scale

The concept of comparative advantage predicts that if all countries had identical endowments and institutions, and then there would be little incentives for specialization, because the opportunity toll of producing whatsoever good would be the same in every country.

So yous may wonder: why is information technology then the case that in the last few years we accept seen such rapid growth in intra-industry trade between rich countries?

The increase in intra-industry between rich countries seems paradoxical nether the calorie-free of comparative reward, because in contempo decades we have seen convergence in fundamental factors, such equally human being capital, beyond these countries.

The solution to the paradox is actually not very complicated: Comparative advantage is one, but non the only force driving incentives to specialization and trade.

Several economists, most notably Paul Krugman, have developed theories of trade in which trade is non due to differences between countries, but instead due to "increasing returns to calibration" – an economical term used to denote a technology in which producing extra units of a expert becomes cheaper if you operate at a larger scale.

The thought is that specialization allows countries to reap greater economies of scale (i.e. to reduce production costs by focusing on producing large quantities of specific products), so merchandise can be a skillful idea even if the countries do not differ in endowments, including civilization and institutions.

These models of trade, often referred to equally 'New Trade Theory', are helpful to explicate why in the last few years we have seen such rapid growth in two-style exchanges of goods inside industries between developed nations.

In a much cited paper, Evenett and Keller (2002)³³ prove that both gene endowments and increasing returns help explain production and merchandise patterns around the world.

You tin can larn more than near New Trade Theory, and the empirical support behind it, in Krugman's Nobel lecture.

In that location are dozens of official sources of data on international trade, and if you compare these different sources, you will observe that they do non agree with one another. Even if you focus on what seems to exist the same indicator for the same year in the same country, discrepancies are large.

For case, for Mainland china in 2010, the estimated total value of goods exports was $1.48 trillion according to Globe Bank Information, merely it was $one.58 trillion according to WTO Data. That'due south a difference of most 7%, or a hundred billion Us dollars.

Such differences between sources can too exist found for rich countries where statistical agencies tend to follow international reporting guidelines more closely. In Italy, for example, Eurostat figures of the value of exported appurtenances in 2015 are 10% higher than the merchandise merchandise figures published by the OECD.

And there are too large bilateral discrepancies within sources. According to International monetary fund information, for example, the value of goods that Canada reports exporting to the United states of america is almost $20 billion more than that the value of goods that the US reports importing from Canada.

Here nosotros explicate how international trade information is nerveless and candy, and why there are such large discrepancies.

What data is bachelor?

How large are discrepancies between sources?

In the visualization hither nosotros provide a comparison of the data published past several of the sources listed to a higher place, state past country, since 1955 up until today.

For each country, we exclude trade in services, and we focus only on estimates of the total value of exported appurtenances, expressed as shares of Gross domestic product.³⁷

Equally we tin clearly see in this chart, different data sources tell often very different stories. And this is true, to varying degrees, across all countries and years. You can employ the pick labeled 'alter country', at the bottom of the chart, to focus on whatever country.

Constructing this chart was demanding. It required downloading trade data from many different sources, collecting the relevant series, and and then standardising them so that the units of measure and the geographical territories were consistent.

All serial, except the two long-run series from CEPII and NBER-Un, were produced from data published by the sources in electric current US dollars, and and then converted to GDP shares using a unique source (World Bank).³⁸

And then, if all series are in the same units (share of national GDP), and they all measure the same affair (value of goods exported from 1 state to the rest of the world), what explains the differences?

Permit's dig deeper to sympathize what'south going on.

Why doesn't the data add up?

Differences in guidelines used by countries to record and report trade data

Broadly speaking, there are two master approaches used to estimate international merchandise trade:

The first approach relies on estimating trade from customs records, often complementing or correcting figures with data from enterprise surveys and administrative records associated with revenue enhancement. The main transmission providing guidelines for this approach is the International Merchandise Trade Statistics Manual (IMTS).
The second arroyo relies on estimating trade from macroeconomic data, typically National Accounts. The main manual providing guidelines for this approach is the Balance of Payments and International Investment Position Manual (BPM6), which was drafted in parallel with the 2008 System of National Accounts of the Un (SNA 2008). The idea behind this approach is recording changes in economical ownership.³⁹

Nether these two approaches, it is common to distinguish betwixt 'traded trade' and 'traded appurtenances'. The stardom is often made because goods simply existence transported through a country (i.e. goods in transit) are not considered to change the stock of material resources of a land, and are hence oft excluded from the more narrow concept of 'merchandise trade'.

As well, calculation to the complication, countries often rely on measurement protocols that are developed alongside these approaches and concepts that are not perfectly compatible to begin with. In Europe, for example, countries utilise the 'Compilers guide on European statistics on international merchandise in goods'.

Measurement error and other inconsistencies

Even when two sources rely on the same broad accounting arroyo, discrepancies ascend because countries fail to adhere perfectly to the protocols.

In theory, for example, the exports of country A to state B should mirror the imports of land B from state A. Simply in practice this is rarely the case because of differences in valuation. According to the BPM6, imports and exports should be recorded in the rest of payments accounts on a 'free on board (Fox) basis', which ways using prices that include all charges up to placing the goods on board a send at the port of departure. Yet many countries stick to Play a joke on values merely for exports, and employ CIF values for imports (CIF stands for 'Toll, Insurance and Freight', and includes the costs of transportation).⁴⁰

The nautical chart here gives you an idea of how big import-export asymmetries are. Shown are the differences between the value of goods that each country reports exporting to the Us, and the value of goods that the US reports importing from the same countries. For case, for People's republic of china, the figure in the chart corresponds to the "Value of merchandise imports in the Usa from Cathay" minus "Value of trade exports from Communist china to the US".

The differences in the chart here, which are both positive and negative, suggest that at that place is more than going on than differences in FOB vs CIF values. If all asymmetries were coming from CIF-FOB differences, and then we should only see positive values in the chart (recall that, unlike Pull a fast one on values, CIF values include the cost of transportation, and so CIF values are larger).

What else is going on here?

Another mutual source of measurement error relates to the inconsistent attribution of trade partners. An instance is failure to follow the guidelines on how to treat goods passing through intermediary countries for processing or merchanting purposes. As global production bondage become more complex, countries find it increasingly hard to unambiguously establish the origin and final destination of trade, even when rules are established in the manuals. ⁴¹

And there are however more potential sources of discrepancies. For example differences in customs and tax regimes, and differences between "general" and "special" trade systems (i.e. differences between statistical territories and actual state borders, which practise not often coincide considering of things similar 'custom gratuitous zones').⁴²

Fifty-fifty when 2 sources take identical trade estimates, inconsistencies in published data tin arise from differences in substitution rates. If a dataset reports cross-country trade data in U.s.a. dollars, estimates volition vary depending on the exchange rates used. Different exchange rates will lead to alien estimates, even if figures in local currency units are consistent.

Wrapping up

Asymmetries in international trade statistics are large and they arise for a diversity of reasons. These include conceptual inconsistencies across measurement standards, every bit well as inconsistencies in the mode countries employ agreed protocols. Hither's a checklist of issues to keep in mind when comparing sources.

Differences in underlying records: is trade measured from National Accounts information rather than directly from custom or tax records?
Differences in import and export valuations: are transactions valued at FOB or CIF prices?
Inconsistent attribution of merchandise partners: how is the origin and terminal destination of merchandise established?
Difference between 'appurtenances' and 'trade': how are re-importing, re-exporting, and intermediary merchanting transactions recorded?
Exchange rates: how are values converted from local currency units to the currency that allows international comparisons (near often the U.s.-$)?
Differences betwixt 'general' and 'special' trade system: how is trade recorded for custom-free zones?
Other issues: Time of recording, confidentiality policies, product classification, deliberate misinvoicing for illicit purposes.

These factors have long been recognized past many organizations producing trade information. Indeed, international organizations often contain corrections, in an endeavour to improve data quality along these lines.

The OECD's Counterbalanced International Merchandise Trade Statistics, for case, uses its ain approach to correct and reconcile international trade trade statistics.⁴³

The corrections practical in the OECD'due south 'balanced' serial brand this the best source for cross-country comparisons. However, this dataset has low coverage across countries, and it just goes back to 2011. This is an important obstacle, since the circuitous adjustments introduced past the OECD imply we can't hands meliorate coverage by appending information from other sources. At Our World in Data nosotros have called to rely on CEPII every bit the main source for exploring long-run changes in international trade; but we as well rely on World Bank and OECD data for upwards-to-date cross-country comparisons.

There are two cardinal lessons from all of this. The showtime lesson is that, for most users of merchandise data out there, at that place is no obvious way of choosing between sources. And the 2d lesson is that, considering of statistical glitches, researchers and policymakers should e'er have analysis of trade data with a pinch of common salt. For instance, in a contempo loftier-profile report, researchers attributed mismatches in bilateral trade data to illicit financial flows through trade misinvoicing (or trade-based money laundering). Every bit nosotros show hither, this estimation of the data is not appropriate, since mismatches in the data can, and oftentimes exercise arise from measurement inconsistencies rather than malfeasance.⁴⁴

Hopefully the discussion and checklist in a higher place tin can help researchers ameliorate translate and choose betwixt conflicting data sources.

Information Sources

International Historical Statistics (by Brian Mitchell)

Data: Aggregate trade (current value), bilateral trade with principal trading partners (current value), and major article exports by master exporting countries. No data on merchandise as share of GDP is readily available.
Geographical coverage: Countries around the world
Time span: Long time series with almanac observations – from 19th century up to today (2010)
Available at: The books are published in three volumes covering more than 5000 pages.⁴⁵

At some universities you tin admission the online version of the books where data tables can be downloaded as ePDFs and Excel files. The online access is here.

Information from the 19th century onwards for countries around the world is available in the International Historical Statistics (IHS). These statistics – originally published under the editorial leadership of Brian Mitchell (since 1983) – are a collection of data sets taken from many principal sources, including both official national and international abstracts. This is quite an extensive dataset going back as far as 1891, however, currencies include kronen, schillings etc. which would further demand to be looked into as to how to convert to Us$ and the excel file download also needs formatting before information technology can be suitably workable.

Penn World Tables

Information: Existent and PPP-adjusted GDP in Us millions of dollars, national accounts (household consumption, investment, government consumption, exports and imports), exchange rates and population figures.
Geographical coverage: Countries effectually the world
Time bridge: from 1950-2017 (version 9.1)
Available at: Online here
Feenstra, Robert C., Robert Inklaar and Marcel P. Timmer (2015), "The Side by side Generation of the Penn World Table" forthcoming American Economic Review, available for download at www.ggdc.net/pwt

Correlates of State of war Bilateral Merchandise

Information: Total national trade and bilateral trade flows between states. Total imports and exports of each country in current US millions of dollars and bilateral flows in current US millions of dollars
Geographical coverage: Single countries around the earth
Time bridge: from 1870-2009
Bachelor at: Online at www.correlatesofwar.org
This data set is hosted by Katherine Barbieri, Academy of S Carolina, and Omar Keshk, Ohio State University. Authors annotation in their 'Moo-cow Trade Data Fix Codebook': "We suggest against using the dyadic information file to produce any national or global totals, based on aggregations of the partner trade."

Earth Banking company – Globe Development Indicators

Data: Trade (% of GDP) and many more specific serial: trade in trade, merchandise in services, trade in high-technology, trade in ICT goods, trade in ICT services – always exports and imports separately. As well export and import value alphabetize and volume index.
Geographical coverage: Countries and world regions
Time span: Annual since 1960
Available at: Online at http://data.worldbank.org

UN Comtrade

Data: Bilateral trade flows by commodity
Geographical coverage: Countries around the world
Fourth dimension span: 1962-2013
Bachelor at: Online here
Bilateral trade flows can be sorted by appurtenances or services, monthly or annually, with choice of classification (including HS codes, SITC, and BEC). Data is likely to be very time consuming to collate equally there is no bulk data download unless a user has a premium site license.

UNCTADstat

Information: Many different measures, including trade past volumes and value
Geographical coverage: Countries around the world
Time span: For some series, data is available since 1948 – mostly annual, sometimes quarterly.
Available at: Online here
UNCTADstat reports export and import information between 1995 and 2016 merely primarily to different regional groupings than whatsoever one country, so information technology's probably not best suited to comparing country-to-country bilateral flows.

Eurostat – COMEXT

Information: Trade flows (also by article)
Geographical coverage: Europe (Eu and EFTA)
Time bridge: Mostly since 1988
Available at: Online here
Also, the Eurostat website 'Statistics Explained' publishes upwardly-to-date statistical information on international trade in goods and services.

World Trade Organization – WTO

Information: Many series on tariffs and trade flows
Geographical coverage: Countries around the world
Fourth dimension span: Since 1948 for some series
Available at: Online here
The WTO offers a bulk download of trade datasets which tin can be found here. Amongst these are annual WTO merchandise trade values and WTO-UNCTAD-ITC almanac merchandise in services datasets. The quondam is available from 1948 – 2017, workable, with very niggling additional formatting needed. However, observations are country groups, such as the EU28, the BRICS etc. rather than state-by-country values. Otherwise, the WTO'southward Statistics Database (SDB) has extensive fourth dimension serial on international merchandise, by country with their trading partners. Again, trading partners are primarily restricted to land groupings rather than individual nations.

Fouquin and Hugot (CEPII 2016) – TRADHIST dataset

Information: Many different data sets related to international trade, including merchandise flows by commodity geographical variables, and variables to approximate gravity models
Geographical coverage: Countries around the world
Available at: Online hither
TRADHIST Bilateral Trade Historical Series: New Dataset 1827-2014 provides all-encompassing dyadic trade data, with 97 percentage of the observations from 1948 to today drawing on the Imf'due south Direction of Trade Statistics (DOTS) dataset.

NBER-United nations Trade Data, 1962-2000

Data: Export and import values and volumes past commodity
Geographical coverage: Single countries
Fourth dimension span: 1962-2000
Available at: Online here
This information is as well available from the Heart for International Data. Bilateral trade information value estimates are very close to that of the Earth Bank's imports of goods and services time series.

Federico-Tena World Trade Historical Database

Information: This website contains annual series of trade by polity from 1800 to 1938 which sum as series for continent and world.
Geographical coverage: Countries effectually the globe
Time span: 1800-1938
Bachelor at: Federico, K., Tena Junguito, A. (2016). World trade, 1800-1938: a new data-set up. EHES Working Papers in Economic History, n. 93. Online here

Other historical trade data sets

Data on UK bilateral trade for the time 1870-1913 was collected by David S. Jacks. It is downloadable in excel format hither.
For the time 1870-1913 21,000 bilateral trade observations can exist establish in Mitchener and Weidenmier (2008) – Merchandise and empire, bachelor in the Economical Journal here.
Data on UK, Germany, France, and U.s.a. betwixt mid-19th to 20th Century can be establish here.
Data on Developing Country Export – in 1840, 1860, 1880 and 1900 – past John Hanson is bachelor here.
Information onmerchandise between England and Africa during the period 1699-1808 is available on the Dutch Data Archiving and Networked Services. It was compiled by Marion Johnson.

Source: https://ourworldindata.org/trade-and-globalization

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