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Business News/ Economy / Trade to GDP ratio nears 2008 crisis levels

NEW DELHI : The Russia-Ukraine war, the covid pandemic and trade tensions between the US and China dragged the trade-to-gross domestic product, or ‘trade openness’ ratio, to levels last seen during the 2008 global financial crisis, according to the World Bank’s recent policy research paper.

The report, Measuring globalization when it is needed the most’ authored by Sebastian Franco-Bedoya said the trade-to-GDP ratio rose until 2008 to reach 61%, before crashing to 52% in 2009 due to the contraction in international trade in the aftermath of the global financial crisis. “The trade-to-GDP ratio recovered in 2011 to 60%, but since trended back to 52%. The dynamics after 2008 seem to suggest that globalization stagnated or declined."

The observations assume significance as Indian exports are expected to remain under stress due to falling demand in the Western. India’s exports fell 12.7% from $39.7 billion a year earlier to $34.66 billion in April, government data published on Monday showed.

However, it warned that the ratio as a trade openness measure can be misleading and that measuring globalization accurately is necessary to understand the impact of the current challenges of the world economy. “A low ratio does not necessarily imply that high trade barriers exist but maybe due to factors like the size of an economy, geographic remoteness from trading partners, and the economy’s structure," it said.

While the world economy has globalized in the last decades, these dynamics have differed across regions. South Asia and Latin America and the Caribbean (LAC) come on top, while North America has a declining trend during the 2000s in manufacturing.

The dynamics in North America are driven by the US and these were discussed above. The case of South Asia, while surprising at first sight, is driven by India and in line with the results in figure.

“After underperforming the world economy and having serious difficulties, India made rapid progress (starting around 1990) in integrating into the global economy and recovered the lost ground to a large extent," the report further added.

Sectoral dynamics show that while manufacturing globalization was already strong in the 1960s, agricultural and services globalization took off in the late 1970s and 1990s, respectively.

Country-specific dynamics provide deeper insights and capture important economic episodes. For instance, globalization dynamics for the Chinese economy show that it has outperformed the world economy since it started integrating into the global economy in the late 1980s, contrary to what the trade-to-GDP ratio would suggest, the report said.

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Updated: 28 May 2023, 11:00 PM IST
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