Shifts in International Trade and Value Added from 1995 to 2007: Insights into the Drivers of Growth

We decompose global export growth into a structural and a pure growth component in order to highlight the importance of structural change at the regional and industry level for the impressive growth performance of international trade. For this, we combine data on exports, output and sector-specific prices for a sample of roughly 150 countries and 22 manufacturing industries over the period from 1995 to 2007. While structural change played only a minor role for Western Europe, NAFTA and also Southeast Asia over this period, the region of Central, Eastern and Southeastern Europe shows an outstanding amount of restructuring at the industry level. Especially the new EU member countries were rapidly restructuring toward globally important industries despite their initial harmful specialization pattern. Furthermore, this region shows by far the highest elasticity of exports to output and demand changes at the industry level. While we do not observe an excessive reaction of exports to output expansion at the level of individual industries, exports react highly elastically to changes in global demand. However, elasticity differs greatly among individual regions and among industries. This corroborates the view that rapid growth in world trade arises from changes in the regional and sectoral composition of global production and trade, with faster-growing economies moving rapidly into more trade-intensive activities.