Publication: Arm's-Length Trade: A Source of Post-Crisis Trade Weakness
Date
2017-07
ISSN
Published
2017-07
Author(s)
Abstract
Trade growth has slowed sharply since
the global financial crisis. U.S. trade data highlights that
arm's-length trade —trade between unaffiliated
firms—accounts disproportionately for the overall
post-crisis trade slowdown. This is partly because
arm's-length trade depends more heavily than intra-firm
trade on emerging market and developing economies (EMDEs),
where output growth has slowed sharply from elevated
pre-crisis rates, and on sectors with rapid pre-crisis
growth that boosted arm's-length trade pre-crisis but
that have languished post-crisis. Compounding such
compositional effects, arm's-length trade is also more
sensitive to changes in demand and real exchange rates. For
example, the income elasticity of arm's-length exports
is about one-fifth higher than that of intra-firm exports.
Hence, post-crisis global growth weakness has weighed more
on arm's-length trade than on intra-firm trade.
Unaffiliated firms may also have been hindered more than
multinational firms by constrained access to finance during
the crisis, heightened policy uncertainty, and their typical
firm-level characteristics.
Link to Data Set
Citation
“Lakatos, Csilla; Ohnsorge, Franziska. 2017. Arm's-Length Trade: A Source of Post-Crisis Trade Weakness. Policy Research Working Paper;No. 8144. © World Bank, Washington, DC. http://hdl.handle.net/10986/27647 License: CC BY 3.0 IGO.”
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