Source: WTO, Table A-1. Recession data from National Bureau of Economic Research.
The growth rates of the world GDP and merchandise production have a very high level of concordance (R=0.91). However, total merchandise trade is subject to significant fluctuations linked with commodity prices, business cycles, and periods of growth and recession. Periods of decline in world trade are all corresponding to recessions, such as 1981-82, the Asian Financial crisis of 1997, the recession of 2001, and the financial crisis of 2008-2009. Commodity price fluctuations, particularly agricultural products and minerals (fossil fuels), are the factors contributing the most to changes in merchandise trade.
The level of association between trade and production is much lower (R=0.38), particularly in recent decades as many manufacturing activities were offshored to lower-cost locations. Thus, without additional demand, the relocation of a factory from one part of the world to another can be considered as a zero-sum game from a production standpoint, but from a trade standpoint, it results in additional flows. However, relocation commonly results in lower costs, which are likely to trigger additional demand. Trade has consequently grown at least 3 times as much as production between 1950 and 2010, underlining that economies are increasingly interdependent. Still, a growing divergence is noted and which took place in three phases:
- Before 1970. Until the 1970s, the growth of trade, GDP and production was quite similar, underlining that globalization was still in its early stages and mostly involving finished goods and raw materials.
- Between 1970 and 1985. The first significant divergence took place in the 1970s and was mainly related to the first two oil shocks that resulted in significantly higher energy prices and the corresponding surge in the value of total merchandise trade. This divergence was therefore driven by commodity prices.
- After 1985. The second divergence took place after 1985 and was mainly linked with the emergence of an international division of production with the setting of manufacturing activities in developing countries. This divergence was driven by the setting of global production networks and supply chains.
Once globalization will reach maturity, implying modest growth levels in trade, it is quite possible that commodity prices would again become the main factor of divergence between trade and economic output.