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New and Traditional Trade Flows and the Economic Crisis

Report by Nicita, Alessandro, Tumurchudur-Klok, Bolormaa, 2011

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In terms of economic development, it makes a difference whether export increases at the extensive (new trade flows) or intensive margin (traditional, well-established trade flows). Similarly, a decline in international trade may affect new flows relatively more than traditional ones. A more severe impact on new trade flows could impose additional obstacles to recovery for those countries relying on export diversification for their economic development. This paper seeks to determine whether the recent decline in international trade has affected relatively more trade at the extensive margin or at the intensive margin. The overall results indicate that the economic crisis of 2008 and 2009 has had more severe implications for those bilateral trade flows that did not exist before 2006. New bilateral flows have a lower probability of surviving the fall in demand and relatively higher negative effects on their volumes of trade. Consequently, the economic crisis may also affect the global economy by producing delays in the international product cycle, with traditional and larger exporters holding ground in a relatively better way than new entrants.



UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT







POLICY ISSUES IN INTERNATIONAL TRADE AND COMMODITIES


STUDY SERIES No. 49





NEW AND TRADITIONAL TRADE FLOWS
AND THE ECONOMIC CRISIS




by






Alessandro Nicita


and


Bolormaa Tumurchudur-Klok


UNCTAD, Geneva 












UNITED NATIONS
New York and Geneva, 2011





ii


Note

The purpose of this series of studies is to analyse policy issues and to stimulate discussions
in the area of international trade and development. The series includes studies by UNCTAD staff
and by distinguished researchers from academia. This paper represents the personal views of the
authors only, and not the views of the UNCTAD secretariat or its member States.

The designations employed and the presentation of the material do not imply the
expression of any opinion whatsoever on the part of the United Nations Secretariat concerning the
legal status of any country, territory, city or area, or of its authorities, or concerning the
delimitation of its frontiers or boundaries.

Material in this publication may be freely quoted or reprinted, but acknowledgement is
requested, together with a reference to the document number. It would be appreciated if a copy of
the publication containing the quotation or reprint could be sent to the UNCTAD secretariat at the
following address:



Chief


Trade Analysis Branch
Division on International Trade in Goods and Services, and Commodities


United Nations Conference on Trade and Development
Palais des Nations
CH-1211 Geneva





Series Editor:
Victor Ognivtsev


Officer-in-Charge, Trade Analysis Branch






UNCTAD/ITCD/TAB/50






UNITED NATIONS PUBLICATION


ISSN 1607-8291










© Copyright United Nations 2011
All rights reserved





iii


Abstract



In terms of economic development, it makes a difference whether export increases at the


extensive (new trade flows) or intensive margin (traditional, well-established trade flows).
Similarly, a decline in international trade may affect new flows relatively more than traditional
ones. A more severe impact on new trade flows could impose additional obstacles to recovery for
those countries relying on export diversification for their economic development. This paper seeks
to determine whether the recent decline in international trade has affected relatively more trade at
the extensive margin or at the intensive margin. The overall results indicate that the economic
crisis of 2008 and 2009 has had more severe implications for those bilateral trade flows that did not
exist before 2006. New bilateral flows have a lower probability of surviving the fall in demand and
relatively higher negative effects on their volumes of trade. Consequently, the economic crisis may
also affect the global economy by producing delays in the international product cycle, with
traditional and larger exporters holding ground in a relatively better way than new entrants.





Keywords: International trade flows, economic crisis


 
 








iv






Acknowledgements




The authors wish to thank Marco Fugazza, Mia Mikic and Miho Shirotori for their
helpful comments and discussion. We are also grateful to participants in seminars
at the World Trade Organization and at the University of Geneva.

Any mistakes or errors remain the authors' own, who may be contacted at the
following e-mail address: alessandro.nicita@unctad.org.











v


Contents
 




Introduction ......................................................................................................................................1




1. New and traditional trade flows..........................................................................................2


2. Econometric methods...........................................................................................................7


3. Econometric results..............................................................................................................8




Conclusions ....................................................................................................................................11




References ....................................................................................................................................12









List of figures


Figure 1. Number of new and traditional bilateral trade flows, by month ..................................4
Figure 2. Volumes of new and traditional bilateral trade flows, by month .................................5
Figure 3. Kaplan-Meier: Smoothed hazard estimates..................................................................6





List of tables


Table 1. Incidence of new trade flows, by country ....................................................................3
Table 2. Duration of trade flows ................................................................................................6
Table 3. Conditional Logit regression........................................................................................9
Table 4. Cox regression..............................................................................................................9
Table 5. Panel regression .........................................................................................................10








1


Introduction 


In the last 20 years, international trade has increased more than five-fold to reach about
$15 trillion in 2008. For developing countries, export growth has been even faster, as it jumped
from about $800 billion in 1990 to about $5 trillion in 2008. Most of the increase in trade has been
at the intensive margin; that is, an increase in volume of existing trade flows. The growth at the
extensive margin, whether due to exports to new markets or due to exports of new products, has
been much lower (Amurgo-Pacheco and Pierola, 2007; Besedes and Prusa, 2007 and Brenton and
Newfarmer, 2007).



In terms of economic development, it makes a difference whether export increases at the


extensive or intensive margin. In general, countries that have been able to expand into the export of
new products have performed better in terms of economic development (Hausmann et al., 2006).1
Similarly, in periods of slowing economic growth or declining demand, it could make a difference
whether the fall in trade is at the intensive or extensive margin. The export of new products often
anticipates the future export potential of a country. If periods of shrinking demand have a relatively
higher negative impact on new export flows, this could imply stronger repercussions for economic
growth in developing countries.



This paper investigates whether export performance in time of economic crisis differs


between new trade flows and well-established flows. There are several reasons why reduced global
demand could have a different impact on bilateral trade flows, depending on length relationships.
For example, new exporters may be the ones that were filling the increasing marginal demand, thus
operating on smaller margins. Consequently, these new exporters may be the first to be crowded
out once markets shrink. Similarly, in times of economic crisis, importers may be more willing to
rely on proven suppliers. Suppliers with a limited history may be considered too risky and thus be
the first to experience reduced demand. However, new exporters may be those that adopt newer
varieties, newer and more efficient production processes and thus navigate better through price
declines. Moreover, new products may benefit from some forms of government support and thus
be more resilient. Similarly, a large initial investment may force firms to stay in the market even at
a loss, hoping for a quick recovery of demand and prices. Finally, an economic crisis may represent
a structural break, thus providing the shock necessary to reshape trade flows and offer
opportunities to new entrants.



To investigate the relative performance of new export sectors versus traditional ones, we


proceed in three steps. Firstly, we use a probabilistic econometric model to determine whether the
occurrence of exporting in periods of declining demand differs according to the length of the trade
relationship. Secondly, we examine whether new products behave differently in terms of spell
duration from traditional products and whether this changes during a period of shrinking demand.
In doing so, we utilize the standard methods of the trade duration literature: the Kaplan-Meier
estimator and the Cox regression approach. Finally, we use a standard panel estimation to measure
any difference in the effect on trade volumes of new flows versus traditional, well-established
flows.



The findings suggest that, although shrinking demand has had a negative effect on trade


both at the extensive and intensive margins, trade at the extensive margin appears to have been
relatively more affected, especially with regard to its magnitude. Moreover, the results hint at other



1 The failure of many developing countries to successfully diversify out of their traditional export sectors
suggests that export diversification is not an easy task. It often involves fixed costs and high entry barriers
that often require large investments that cannot be met without careful planning and government support
(Hausmann and Rodrik, 2003).





2


determinants that may be more important in explaining the effect of the crisis on bilateral trade
relationships. Indeed, our results suggest that that the past magnitude of bilateral trade is important,
with larger flows relatively less affected than smaller ones.



The outline of the paper is as follows. Chapter 1 presents the data and some descriptive


statistics on new and traditional trade flows. Chapter 2 discusses the methodology to estimate the
impact of the crisis on trade flows. Chapter 3 presents the results and is followed by conclusions
drawn from the study.


1. New and traditional trade flows 
Many factors determine bilateral trade flows. In addition to supply and demand factors,


government policies, trade costs, geography, cultural links and past experience in trade
relationships also play an important role as determinants of international trade (Nicita and
Olarreaga, 2007).



Periods of declining international demand can relate to new and traditional bilateral trade


flows in several ways. For example, to the extent to which new export flows stem from exporters
with higher costs – for instance because these exports filled the marginal demand in the previous
period of economic growth – these flows are likely to be the first to disappear when global demand
shrinks. However, new export flows could be the reflection of changes in global production chains
with new, more efficient exporters replacing traditional ones. If so, new export flows will be less
likely to be affected by shrinking demand. Past trade relationships may also play an important role.
In periods of economic downturn, firms may tend to engage in businesses relationships solely with
proven partners, as uncertainty and risks are generally higher. In this regard, firms that have just
entered a determined market or started exporting a new product can find themselves in a more
difficult position in competing with firms that have already established trade relationships.



The objective of this paper is to analyse the performance of new export flows relative to


well-established traditional exports in times of shrinking demand. The data we use in the analysis
consists in monthly data relating to the United States of America from January 2007 to June 2009
originating from the Interactive Tariff and Trade DataWeb of the United States International Trade
Commission. The data is at the harmonized system (HS) six-digit-level classification
encompassing some 5,000 different products. Import data is bilateral and covers about 110 trading
partners. Since we set the start of the economic crisis in October 2008, our analysis is based on 21
time periods before the crisis and 9 during the crisis. New trade flows are defined as those bilateral
flows at the product level that did not exist before 2006 – but did exist in 2006 or 2007. The study
does not consider products for which total imports to the United States were under $10 million for
the 2007–2008 period – thus excluding economically meaningless products – or bilateral trade
flows under $10,000.2



Table 1 provides descriptive statistics on the incidence of new trade flows in terms of the


number of flows and volumes of trade in 2008. On average, we observe that about 6 per cent of
bilateral trade flows and 13 per cent of trade volumes can be classified as new flows. Further, the
percentage of new trade flows both in number and volumes varies substantially by country. The
amount of new trade flows ranges from zero for Sudan, Chad, Azerbaijan, and Tajikistan (implying
that exports from these countries to the United States in 2008 were limited to products that had
already been exported before 2006) to about 17 per cent for Paraguay and Uganda (implying that
17 per cent of the products exported by these countries to the United States in 2008 were not
exported prior to 2006). With regard to trade volumes, the percentage of trade categorized as new
also varies considerably across countries. New flows represent an important share of total trade for



2 We also test the validity of our results according to different definitions of new products.






3


a number of developing countries. Trade flows categorized as new represent more than 20 per cent
of total trade for nine countries, seven of which are in East Asia. This indicates that countries in
that region are the most dynamic new market entrants.



Table 1. Incidence of new trade flows, by country




Country


Percentage of
new bilateral
trade flows


(%)


Percentage of
trade under
new flows


(%)


Average volume
of new relative to
traditional trade


flow (%) Country


Percentage of
new bilateral
trade flows


(%)


Percentage of
trade under
new flows


(%)


Average volume
of new relative to
traditional trade


flow (%)

Albania 0.9 0.1 38 Lao PDR 7.4 1.8 26
Algeria 10.1 1.5 10 Latvia 12.9 10.1 87
Angola 2.5 0.0 68 Lebanon 5.6 3.1 96
Argentina 5.4 5.4 109 Lithuania 7.8 4.6 68
Australia 5.1 2.2 42 Madagascar 3.3 0.2 8
Austria 5.9 5.3 70 Malawi 8.1 5.6 47
Azerbaijan 0.0 0.0 4 Malaysia 9.3 32.2 478
Bangladesh 4.0 0.1 3 Mauritius 4.3 0.7 29
Belarus 10.2 2.8 23 Mexico 4.7 20.4 504
Belgium 4.3 1.6 41 Mongolia 1.0 0.0 74
Bolivia, Plurinational 8.4 7.8 72 Morocco 6.0 13.4 221
State of Mozambique 5.6 1.8 23
Bosnia and 4.9 2.3 91 Nepal 3.5 0.9 29
Herzegovina Netherlands 4.9 8.7 204
Brazil 4.6 3.6 89 New Zealand 6.7 4.0 53
Bulgaria 5.8 3.9 63 Nicaragua 7.7 1.2 15
Burkina Faso 2.9 1.2 518 Nigeria 5.0 1.3 25
Cambodia 6.3 0.8 12 Norway 6.9 11.4 159
Canada 4.4 3.6 85 Pakistan 2.5 4.2 152
Chad 0.0 0.0 4 Panama 10.0 9.6 73
Chile 8.8 14.0 156 Papua New Guinea 11.4 1.4 13
China 5.4 22.4 503 Paraguay 16.4 18.1 124
China, Hong Kong 5.8 11.0 212 Peru 5.8 3.4 51
China, Taiwan 5.7 28.3 676 Philippines 7.9 26.0 417
Province of Poland 5.8 6.3 102
Colombia 6.6 16.5 264 Portugal 6.0 8.5 199
Costa Rica 8.3 10.6 120 Republic of Korea 5.2 32.1 845
Côte d'Ivoire 7.3 1.5 13 Republic of Moldova 4.0 7.3 130
Croatia 6.1 2.6 42 Romania 5.8 4.1 80
Czech Republic 5.4 8.2 140 Russian Federation 5.1 2.3 48
Denmark 5.5 4.8 98 Saudi Arabia 5.3 2.7 38
Dominican Republic 6.5 5.2 80 Senegal 3.5 2.3 47
Ecuador 8.9 18.7 223 Singapore 7.1 25.0 398
Egypt 5.7 6.0 82 Slovak Republic 12.0 5.6 46
El Salvador 4.7 3.7 72 Slovenia 7.2 10.1 118
Estonia 10.6 10.1 126 South Africa 5.3 0.7 12
Ethiopia 7.1 1.9 27 Spain 4.0 2.9 87
Finland 5.0 4.6 96 Sri Lanka 4.1 1.3 29
France 4.2 1.9 46 Sudan 0.0 0.0 2
Gabon 5.5 3.0 28 Sweden 4.9 7.1 124
Germany 4.3 3.7 84 Switzerland 4.1 2.3 48
Ghana 11.3 19.9 125 Syrian Arab Republic 4.6 1.1 27
Greece 5.3 2.1 41 Tajikistan 0.0 0.0 8
Guatemala 4.8 3.6 45 Thailand 6.8 22.0 374
Haiti 2.3 0.1 4 Tunisia 4.6 3.8 73
Honduras 5.7 5.3 88 Turkey 4.8 2.4 61
Hungary 8.1 22.3 261 Uganda 18.0 3.5 25
India 4.3 3.6 67 Ukraine 5.6 4.6 67
Indonesia 8.1 12.4 152 United Kingdom 4.6 3.0 67
Iran (Islamic Rep. of) 3.7 0.1 3 United Republic 5.5 7.5 103
Ireland 6.6 3.0 42 of Tanzania
Israel 5.5 4.7 115 Uruguay 9.8 9.6 78
Italy 4.6 3.9 73 Uzbekistan 1.7 0.0 13
Jamaica 6.5 0.6 8 Venezuela, Bolivarian 2.4 1.7 49
Japan 4.2 13.4 360 Republic of
Jordan 5.8 1.2 18 Viet Nam 10.5 6.4 61
Kazakhstan 7.4 0.1 2 Zambia 1.8 0.0 9
Kenya 7.4 3.0 35





4


The relative size of the trade volumes of new trade flows versus traditional ones is shown
in table 1. Interestingly, for several countries in East Asia and some in Latin America, new trade
flows tend to have a larger volume – up to 8 times larger in the Republic of Korea, for example –
than traditional trade flows. This implies that growth in exports has been largely due to growth in
new products for these countries. Their success in achieving economic development indicates that
export growth at the extensive margin is related to economic growth.



The effect of the economic crisis on United States imports is illustrated in figures 1 and 2.


Figure 1 shows the trends in the number of new and traditional United States bilateral import flows
between January 2008 and June 2009. Figure 2 provides the same information, but in terms of
trade volumes. For comparison purposes, the numbers are indexed with the first period as base.
The vertical line represents the crisis break, in October 2008. Disregarding any consideration of
possible seasonality, we observe an overall reduction in new and traditional trade flows during the
crisis break, both with regard to their number and their volume. Although trade volumes of new
and traditional flows decline with a similar magnitude, new flows appear to decrease more
substantially in number than traditional flows.





Figure 1. Number of new and traditional bilateral trade flows, by month



Notes: Index base period: Jan2008 = 100


Bandwidth = .8


85


90


95


100


105


Jan08 Apr08 Jul08 Oct08 Jan09 Apr09 Jul09 Jan08 Apr08 Jul08 Oct08 Jan09 Apr09 Jul09


Traditional trade flows New trade flows


Index: number of bilateral flows




Lowess smoother






5


Figure 2. Volumes of new and traditional bilateral trade flows, by month



Note: Index base period: Jan2008 = 100


We now turn to the length of bilateral trade relationships. The question we would like to


answer is whether there is any difference in the trade relationship between new and traditional
trade flows, and whether shrinking demand in the United States has a different effect on each of the
trade flows. Figure 3 illustrates the smoothed hazard estimates for new and traditional trade flows
from January 2007 to June 20093 and table 2 provides some summary statistics on the spells as
well as the country-product-periods that have non-zero trade.4 According to these preliminary
results, there is no difference in trade duration with regard to flow type (new or traditional) or
period (before or during the crisis). The only noticeable difference is that the new trade flows are
more likely to end in their first few months than the traditional flows. However, the average spell
lengths in months that were measured in the nine months before and during the crisis are very
similar at around three months. The difference is greater before and during the crisis with regard to
the total number of spells and of trade relationships. This suggests that the crisis may have had an
effect on the number of bilateral trade flows, terminating some, but not changing the duration of



3 We first examine duration by using the Kaplan-Meier estimator, where )(ˆ tS , the overall probability of


survival past time t of product i, is calculated as: ∏


−=
tti i


ii


j
n


dntS
|


)()(ˆ


where n is the number of bilateral flows at risk at time t, and d is the number of failed bilateral flows at time
t. The plot of the Kaplan-Meier estimate provides the proportion of the bilateral trade flows that would
survive during each given length of time.
4 To ascertain whether spell lengths of traditional and new trade flows differed before and during the crisis,
we split our sample in two, each spanning a duration of nine months. The pre-crisis period includes all the
spells that started before October 2008; the spells still in force in October 2008 are considered censored. The
crisis period includes all the spells that began in October 2008 or later; the spells that were still in force at the
end of the sample period (June 2009) are considered censored.


80


100


120


140


Jan08 Apr08 Jul08 Oct08 Jan09 Apr09 Jul09Jan08 Apr08 Jul08 Oct08 Jan09 Apr09 Jul09


Traditional trade flows New trade flows


Index: trade volumes


Bandwidth = .8


Lowess smoother





6


the surviving flows. However, also in this case, there are no significant differences between new
and traditional flows.



The results provided in this chapter are descriptive and do not take into account products or


country characteristics. For example, differences across products could mask existing differences
within each product, with declines in demand affecting some products more than others.
Ultimately, we are interested in the within-product differences, meaning that traditional and new
flows behave in a similar fashion once checked for demand shocks at the product level. We will
verify these in the econometric estimations.



Figure 3. Kaplan-Meier: Smoothed hazard estimates by flow type






Table 2. Duration of trade flows



Observed spell


length in months


Mean Median


Total
number
of spells


Total
number of


trade
relationships


Total
number
of flow
codes


Trade periods
that have


nonzero trade
(percentage)


All flows (Jan 2007- June 2009)
All flows 4.52 1 446,019 149,039 4,739 37
New trade flows 4.21 1 26,771 9,023 2,554 38
Traditional trade flows 4.55 1 419,248 140,016 4,738 37



Pre-Crisis (Jan 2008-Sept 2008)


All flows 2.93 1 208,856 114,614 4,732 38
New trade flows 2.97 1 11,181 6,036 1,416 38
Traditional trade flows 2.92 1 198,535 108,578 4,727 38



Post-Crisis (Oct 2008- June 2009)
All flows 2.89 1 200,118 110,827 4,732 35
New trade flows 3.00 1 10,195 5,537 1,228 34
Traditional trade flows 2.88 1 190,582 105,290 4,721 36


0


.02


.04


.06


.08


.1


0 10 20 30
Duration of trade relationship in months


Traditional New







7


2. Econometric methods  
To investigate whether the impact of the shrinking global demand has had a diverse impact


on the intensive margin of trade relative to the extensive margin of trade, we examine three related
issues.



Firstly, we try to determine whether the existence of a bilateral trade flow during the crisis


can be associated with the type of flow – new or traditional. A sudden reduction in demand could
wipe out new exporters because they may be marginal or because they may not be perceived to be
as trustworthy as traditional suppliers. Second, we investigate the extent to which new exporters
can maintain trade relationships after the first few months of the crisis. Sometimes bilateral trade
flows can sustained for a few months because of pending orders and fail only after that. To
ascertain whether the resilience of new trade flows differs from that of traditional trade flows, we
analyse their frequency and duration before and during the crisis. Finally, we study the effects of
shrinking demand on the trade volumes of new bilateral trade flows, compared with those of
traditional flows. In other words, we investigate whether a fall in imports affects more or less the
new trade flows. In all these issues, there is no a priori on whether new sectors could be affected
diversely by shrinking global demand. This is ultimately an empirical question that can be
answered only by analysing the data.



Our analysis begins by running a standard probabilistic model where success is denoted by


the existence of export flows during a period of falling demand. We estimate this model according
to two specifications. The first specification checks for country- and product-fixed effects (at the
HS six-digit level). The second specification adds previous trade volumes as control. In summary,
the estimation captures any difference between new and traditional trade flows, within each 6 digit
product, after having controlled for country specific factors. In more formal terms, we estimate a
conditional fixed-effect logit model of the form:


)()0Pr( ,2,1, kikiikki XNewaatrade ββ +++Φ=≠ (1)

where Φ is the logistic cumulative distribution function, i denotes products, k denotes


country and the alphas denote fixed effects. New is a dummy denoting new bilateral trade flows
and X denotes overall volumes of trade in 2007.



Secondly, we turn to the question of whether the duration of United States imports is


shorter during the crisis and whether the effect of the crisis differs across product types.5 In doing
so, we then estimate the semi-parametric Cox proportional hazards model to determine whether the
duration of new bilateral trade flows is different from that of traditional trade flows.6 We estimate
the model, checking for country, product and time effects by stratifying into HS four-digit product




5 In this context the hazard function is defined as ∫=
t


dtthtH
0


)()( where )(th is the instantaneous risk of


trade-relationship end at time t, conditional on survival to that time:
)(
)()(


tS
tfth = . It can be also shown that


)(tH and )(tS are related by [ ])()( tSLogtH −= .

6 A particular advantage of the Cox model is that the baseline hazard is left unspecified and is not estimated.
However, it assumes a parametric form for the effects of the covariates on the hazard rate, and the hazard
proportionality assumption that the proportion of two kinds of hazard is constant and independent of the
survival time (Wooldridge, 2002; Cameron and Trivedi, 2005).





8


groups, exporting country and United States imports' start time. In formal terms, the stratified Cox
model expressing the risk of a bilateral trade flow (of a product i originating from country k) dying
at time t can be expressed as:


)*exp()()( ,4,,32,10, kitkitkijki XCrisisNewCrisisNewthth ββββ +++= (2)


where )(, th ki denotes the hazard function, )(0 th j is the baseline hazard for the j-th
stratum and X is the volume of trade in 2007 The beta coefficients give the proportional change
that can be expected in the hazard, related to the change in each explanatory variable. Here the
baseline hazards are allowed to be arbitrary and unrelated to the different strata owing to the
stratification. The advantage of the stratified model is that it does not force the baseline hazards to
be proportional across strata. In other words, stratifying permits us to check for country- and
product-fixed effects. Moreover, standard errors are clustered at the HS six-digit-flow level, which
allows for possible ties within flows.



Finally, we use panel estimation to investigate whether there is a relationship between


trade volumes and new bilateral trade flows in periods of shrinking international demand. The
estimation absorbs country, time and product-specific differences into fixed effects. The effects of
the crisis on new bilateral flows are captured by dummies. The interaction term between these two
dummies captures differences for new bilateral trade flows during the crisis. The estimation
equation takes the form:


jkitkitkitiktki CrisisNewCrisisNewaaatradeLog ,,,,32,1,, *)( εβββ ++++++= (3)

where i denotes products; k, country and t, time.7


 


3. Econometric results 
This chapter presents and discusses the results of the three econometric estimations


detailed above. We first discuss the results of the logit model, then the Cox regression and finally
the panel regression.



The results of the logit model are presented in table 3. Two specifications are provided.


The first specification captures the effect of the crisis on new flows by checking only for country-
and product-fixed effects. The second specification adds the value of trade of the bilateral trade
flows before the crisis (2007 values) as a control variable. The results of the first specification
indicate that new and traditional trade flows have a similar probability in surviving the crisis.
However, in the second specification, the coefficients both on the volume of trade and on the new
trade flows becomes significant: larger bilateral trade flows are more likely to withstand the crisis,
while bilateral trade flows that did not exist before 2006 are more likely to end as a result of the
crisis. This implies two effects. Firstly, within each HS six-digit product, small trade flows are less
likely to survive the crisis. Secondly, between two trade flows of similar magnitude, new trade
flows are less likely to survive the decline in demand.



7 To take into account zero trade, we add 1 to all trade flows and then take the log. Alternative estimation
methods such as maximum likelihood estimations prove unfeasible, given the large number of observations
and fixed effects.






9


Table 3. Conditional logit regression


Specification 1 Specification 2
New Flow 0.05 -0.66***
(1.32) ( -10.64)
Export 2007 (in log) 0.39***
(166.64)

Number of observations 152,200 152,200
LR chi2 30,469 88,402
Fixed effects by:


Product (HS6) Yes Yes
Country Yes Yes
Time Yes Yes


Notes: Robust z statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%




We now turn to the question of whether spell length was different in the period before and


during the crisis, after having checked for time, product and country characteristics. Table 4
presents the results from three different specifications of the Cox models. The coefficients are in
exponential form and those of dummy variables give the ratio of the hazard rates for a change from
zero to one. Coefficients above (below) one indicate a positive (negative) effect. The interaction
coefficient captures any additional effect on new products during the crisis. All specifications point
to an effect of the crisis and to an additional effect on new products, but no effect on the interaction
term. In particular, we find that the spell length of new flows is on average lower than that of
traditional flows, but this difference does not change as a consequence of the crisis.





Table 4. Cox regression


Specification 1 Specification 2 Specification 3
Crisis 1.299*** 1.634*** 1.633***
(23.36) (42.51) (43.23)
New flow 1.041 1.310*** 1.308***
(1.53) (9.29) (9.23)
Crisis*, new 0.962 0.994
(-1.23) (-0.19)
Export 2007 (in log) 0.682*** 0.682***
(-95.04) (-95.03)
Number of observations 501,761 463,938 463,938
Wald chi2 553.9 9,142.5 9,131.1
Stratified by


Exporting Countries Yes Yes Yes
Product HS-4 Yes Yes Yes
Year Yes Yes Yes


Notes: Robust z statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%
Standard error adjusted for 4,137 clusters in HS-6







10


The results from the first specification indicate that the crisis had an effect on all trade
flows, reducing their average spell length by about 30 per cent with no substantial difference
between new and traditional flows. By checking the volumes of trade, we find that new trade flows
are on average 30 per cent lower in spell length, and that the effect of the crisis on both new and
traditional flows is about 63 per cent.



Table 5 presents the results for the panel estimation. The first specification captures the


overall effect of the crisis on United States imports, when checking for product, time and country-
fixed effects. The second specification adds the new bilateral flow dummy and the third
specification adds the crisis-new flow interaction term. The results from the various specifications
are comparable, indicating that the impact of the crisis on the volume of bilateral trade flows has
been large and even more so on new trade flows. In particular, the results indicate that the value of
new trade flows is on average about 70 per cent higher than that of traditional flows, while the
effect of the crisis on traditional United States imports is quantified in a slightly more than 20 per
cent reduction in values, with an additional 40 per cent reduction for new trade flows categorized.


The results can be summarized as follows: First, new trade flows appear as likely as
traditional trade flows to survive the crisis because they are on average larger in value. Once the
magnitude of trade flows is checked, new trade flows are less likely to survive the shrink in
demand. Second, regarding the duration of trade flows, we find that on average the crisis has had
an effect on duration, which, however, has not been different for new and traditional flows. Finally,
regarding the effect of the crisis on the magnitude of trade flows, we find that shrinking demand
has caused a substantial drop in trade in both traditional and new flows. However, the impact on
new trade flows has been stronger.



An important caveat is that our analysis is based solely on United States data. The extent to


which these results hold for other trade flows, including those related to other high-income
markets, is an open question. Moreover, our analysis does not aim to provide an understanding of
the long-term implications of the crisis. In particular, it would be interesting to determine to what
extent the relatively larger negative effect on new products will be counterbalanced by a relatively
larger positive effect in the recovery stage. Finally, our results suggest that other determinants may
be more important in determining the success or failure of trade flows in times of shrinking
demand. These are relevant issues that are worth exploring. We leave this to future research, once
more comprehensive data is made available.





Table 5. Panel regression


Specification 1 Specification 2 Specification 3
Crisis -0.24*** -0.24*** -0.22***
(-21.67) (-21.67) ( -19.69)
New Flow 0.65*** 0.77***
(5.06) ( 6.03)
Crisis*, new -0.39***
(-12.22)

Number of observations 4,756,470 4,756,470 4,756,470
F-statistic 193 187 188
Fixed effect by:


Product (HS-6) Yes Yes Yes
Country Yes Yes Yes
Time Yes Yes Yes


Notes: Robust t statistics in parentheses
* significant at 10%; ** significant at 5%; *** significant at 1%
Standard error adjusted for 4,396 clusters in HS-6







11


Conclusions  


In terms of economic development, it makes a difference whether exports increase at the
extensive or intensive margin. Similarly, a fall in international trade can affect new flows relatively
more than traditional ones. A more severe impact on new trade flows could imply additional
obstacles to recovery for those countries relying on export diversification for their economic
development.



In this paper, we analysed whether the fall in international trade stemming from the


economic crisis has affected relatively more trade at the extensive margin or intensive margin. The
overall results indicate that the economic crisis has had more severe implications for bilateral trade
flows that did not exist before 2006. New bilateral flows have a lower probability of surviving the
fall in demand and a relatively higher negative effect on their volumes of trade.



This implies that the economic crisis may be producing delays in the international product


cycle, with traditional and larger exporters holding ground in a relatively better way than new
entrants. As export growth at the extensive margin is correlated with economic growth, this may
have repercussions for the development perspective of smaller, newly emerging economies.



The results also suggest that there are other determinants that may be more important in


explaining the effect of the crisis on different trade flows. In particular, we find some indication
that the volume of the trade flow relates to the magnitude of the effect of the crisis. That is, larger
trade flows appear to be proportionally less affected. Further research on this topic would be
necessary, but if this is confirmed, the reduction in international demand would be most damaging
for smaller and low-income countries with a limited market share in international trade.








12


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London.







13


UNCTAD Study Series on


POLICY ISSUES IN INTERNATIONAL TRADE
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No. 7 Emilio J. Medina-Smith, Is the export-led growth hypothesis valid for developing


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No. 10 Robert Scollay, Regional trade agreements and developing countries: The case of


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No. 15 Bijit Bora, John Gilbert, Robert Scollay, Assessing regional trading arrangements in


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14


No. 16 Lucian Cernat, Assessing regional trade arrangements: Are South-South RTAs more
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No. 17 Bijit Bora, Trade related investment measures and the WTO: 1995-2001, 2002.

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15


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equilibrium modelling, 2008, 25 p.

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indices at the product level, 2010, 55 p.


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No. 49 Alessandro Nicita and Bolormaa Tumurchudur-Klok, New and traditional trade flows


and the economic crisis, 2011, 22 p.



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