Krugman’s blog, 10/31/16

There was one post yesterday, “Trade Plateaus (Wonkish):”

Binyamin Appelbaum has a nice piece about the stall in world trade growth, which I (and many others) have been tracking for a while. And I thought I’d write a bit more about this, if only to serve as a much-needed distraction from the election.

If there’s a problem with the Appelbaum piece, it is that on casual reading it might seem to suggest that slowing trade growth is (a) necessarily the result of protectionism and (b) necessarily a bad thing. Neither of these is right.

I found myself thinking about this some years ago, when teaching trade policy at the Woodrow Wilson School. I was very struck by a paper by Taylor et al on the interwar decline in trade, which argued that much of this decline reflected rising transport costs, not protectionism. But how could transport costs have gone up? Was there technological regress?

The answer, as the paper correctly pointed out, is that real transport costs will rise even if there is continuing technological progress, as long as that progress is slower than in the rest of the economy.

To clear that story up in my own mind, I wrote up a little toy model, contained in these class notes from sometime last decade (?). Pretty sure I wrote them before the global trade stagnation happened, but they’re a useful guide all the same.

As I see it, we had some big technological advances in transportation — containerization, probably better communication making it easier to break up the value chain; plus the great move of developing countries away from import substitution toward export orientation. (That’s a decline in tau and t in my toy model.) But this was a one-time event. Now that it’s behind us, no presumption that trade will grow faster than GDP. This need not represent a problem; it’s just the end of one technological era.

It is kind of ironic that globalization seems to be plateauing just as the political backlash mounts. But we’re not going to talk about the election.

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