National Autonomous University of Mexico

1

TRADE AND WORLD ECONOMIC GROWTH,

1970-2015

Eduardo LoraProject Link, NY City. October 22-24, 2014

A. MOTIVATION

1. EVALUATE ECONOMIC GROWTH FORSEVERAL COUNTRIES IN THE LONG RUN.

WE ARE LIVING A SLOW PACE.

2. DEMONSTRATE THAT INTERNATIONALTRADE IS NOT THE MAIN FUEL OFECONOMIC GROWTH.

11/04/2015 2

B. CONTENTS

Economic Growth.

Some Countries and Regions.

Long run analysis.

International Trade andEconomic Growth.

Econometric Issues.

3

4HP Filter with the end-of-sample correction (St.-Amant &Van Norden, 1997).

Questionable, criticismWell known filter

min =1 =1

2 +

=1

1

+1 12+

=

end-of-sample correction

METHODOLOGICAL ISSUES

ECONOMIC GROWTH, SOME COUNTRIES

1970-2015

5

Statistical Sources:WORLD BANK (2014)

http://databank.bancomundial.org/data/views/reports/tableview.aspx#. September, 2014

IMF (2014) WORLD ECONOMIC OUTLOOK : LEGACIES, CLOUDS, UNCERTAINTIES / Overview of the World Economic Outlook Projections

http://www.imf.org/external/pubs/ft/weo/2014/02/pdf/text.pdf , October, 2014.

WTO (2014):

http://www.wto.org/english/news_e/pres14_e/pr722_e.htm, October, 2014.11/04/2015 6

Germany

7

-6

-4

-2

0

2

4

6

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP POTENTIAL

1971 (3.4)

1990 (2.8)

2014 (1.6)

Latin America

8

-4

-2

0

2

4

6

8

10

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP POTENTIAL

1970(7.6)

1987 (2.0)

2014 (3.1)

2007 (3.6)

Brazil

9

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

15.0

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP POTENTIAL

1970 (11.7)

1991 (1.9)

2014 (2.4)2007 (3.6)

Chile

10

-15

-10

-5

0

5

10

15

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP POTENTIAL

1992 (7.5)

2014 (4.1)

1973 (1.2)

China

Fuente: Banco Mundial (2014)Pronsticos : FMI (2014)

11

-4

0

4

8

12

16

20

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

PIB Potencial

1970 (13.1)

1977 (6.7)

2006 (10.5)

2014 (7.7)

United States

12

-4

-2

0

2

4

6

8

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP POTENTIAL

1970 (2.5)

2009 (1.5)

1997 (3.5) 2014 (2.1)

Japan

13

-6

-4

-2

0

2

4

6

8

10

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP POTENTIAL

1970 (3.3)

1985 (4.5)

2009 (0.6)

2014 (1.2)

Mexico

14

-6

-4

-2

0

2

4

6

8

10

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP POTENTIAL

1970 (6.6)

1987 (2.1) 2009 (2.3)

2014 (2.7)

Russia

15

-15

-10

-5

0

5

10

15

90 92 94 96 98 00 02 04 06 08 10 12 14

GDP POTENTIAL

1990 (-9.2)

2004 (5.9)

2014 (1.4)

European Union

16

-6

-4

-2

0

2

4

6

8

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP POTENTIAL

1970 (4.5)

2009 (0.9)

1982 (2.1)

2014 (0.8)

1999 (2.5)

World

17

-4

-2

0

2

4

6

8

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP POTENTIAL

1970 (4.6)

1992 (2.8)

2009 (2.5)2014 (2.9)

INTERNATIONAL TRADE

18

Volume of world merchandise trade (2005=100), 1970-2012

Source: WTO (2014) 19

0

20

40

60

80

100

120

140

1970 1975 1980 1985 1990 1995 2000 2005 2010

2009 World Crisis

Volume of World Merchandise Trade and World GDP (2005=100), 1970-2015

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0

20

40

60

80

100

120

140

160

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP Trade

2009 Crisis

Trade, 1970-2015Rate of Growth

21

-15

-10

-5

0

5

10

15

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Trade Trend

1997 (6.4)

1981 (3.2)

2014 (3.9)

-15

-10

-5

0

5

10

15

1970 1975 1980 1985 1990 1995 2000 2005 2010

TRADE GDP

Trade Growth and Global growth1970-2015

SOURCE: WORLD BANK (2014) y WTO (2014 ) 22

1975 1982 2009

= 1.50

=4.77

Trade Growth and Global growth, 1970-2015. HP Filter

23

2

3

4

5

6

7

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

GDP TRADE

1981 1996 2009

ECONOMETRIC

ISSUES

24

Unit Root Tests

25

GDP GDP TRADE TRADE

TREND AND INTERCEPT

ADF -0.07* -5.38 -0.99* -7.81

PP 0.87* -5.67 -0.46 -12.46

KPSS 23.02* 3.01 22.43* 0.18

INTERCEPT

ADF 3.57* -4.29 2.22* -6.67

PP 6.79* -4.33 4.15 -6.67

KPSS 17.78* 11.11* 10.77* 4.79

NONE

ADF 12.97* -1.55* 5.44* 0.86

PP 17.65* -1.05* 9.25 -4.88

Note: * Unit Root at 95%

GDP and TradeScatter

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4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

2.8 3.2 3.6 4.0 4.4 4.8 5.2

LTRADE

LG

DP

yt= 3.20 + 0.55 tradet + et(t) (nd) (-25.97)

Johansen Test (r = 1): Trace = 0.40 (0.52); Max Eigen = 0.01 (0.52)

Correct especificacion tests:Urzua = 3.33 (0.94); LM(11) = 3.60 (0.46); White N.C. = 64.54 (0.32)

r = 1; 1 common trend, max eigenvalue = 0.90

ECM: D(y) D(trade)

a -0.076 0.033

SD (0.035) (0.11)

t [-2-15] [0.30]

Granger Causality Test (VEC)

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Variable Dependiente

D(y) D(trade)

2 Prob. 2 Prob.

D(y) 0.00 0.00 53.31 0.00

D(trade) 26.61 0.00 0.00 0.00

Ajuste de Relacin de Cointegracin

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4.6

4.8

5.0

5.2

5.4

5.6

5.8

6.0

6.2

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

LGDP 3.202182+.5525*LTRADE

Historical Simulation(Broyden)

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-2

-1

0

1

2

2.8

3.2

3.6

4.0

4.4

4.8

5.2

70 75 80 85 90 95 00 05 10 15

Actuals LTRADE (Scenario 1)

Deviation Percent Deviation

LTRADE

-.4

-.2

.0

.2

.4

.6

4.5

5.0

5.5

6.0

6.5

70 75 80 85 90 95 00 05 10 15

Actuals LGDP (Scenario 1)

Deviation Percent Deviation

LGDP

Variance Decomposition

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0

10

20

30

40

50

60

70

80

90

100

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

LPIB LCOMER

0

10

20

30

40

50

60

70

80

90

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

LPIB LCOMER

TRADE GDP

Impulse-Response

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Generalizaded impulses. Bootstrap bands at 95%.

0

0.005

0.01

0.015

0.02

0.025

0.03

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30

PIB a Comercio Comercio a PIB

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Thank you

3411/04/2015

Eduardo Lora

Center of Modeling and EconomicForecasting

www.economia.unam.mx/profesores/eloria/www.economia.unam.mx/cempe