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World trade: past, present, and future

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Disciplines
  • Agricultural Science

Abstract

IET_05_03.qxd (Page 1) May 2003 InternationalEconomicTrends Views expressed do not necessarily reflect official positions of the Federal Reserve System. World Trade: Past, Present, and Future As the figure shows, the world’s volume of mer-chandise exports (agricultural, mining, and manu-factured products) increased at an average annual rate of 6.3 percent from 1950 through 2001; world output increased at a rate of 3.8 percent. During this period, there were only four noteworthy declines in merchandise exports—in 1958, 1975, 1982, and 2001, years when world output showed little or no growth. As world growth acceler- ated in 2002 to 3.0 percent, world trade increased by roughly 2.5 percent, a much slower rate than the average for 1950-2001. So what does the future hold for world trade growth? World trade prospects depend on three key factors— income growth, reductions in trade barriers, and declines in transportation costs. Scott Baier and Jeffrey Bergstrand estimated that, between the late 1950s and the late 1980s, income growth explained about 67 percent of the average trade growth of several developed countries, tariff-rate reductions about 25 percent, and declines in transportation costs about 8 percent.1 In the April 2003 World Economic Outlook, the International Monetary Fund projected that world output would grow 3.2 percent in 2003. If accurate, such a small increase in world output over 2002 suggests only a small increase in world trade. Turning to multilateral trade negotiations, the prospects are poor for any substantial near-term reductions in trade barriers. It seems unlikely that the Doha Round of World Trade Organization (WTO) negotiations will be completed by 2005, as a deadline for setting ground rules for agri- cultural talks has come and gone with no agreement. Neither does it seem likely that regional or bilateral agreements involving the United States will provide the impetus for trade barrier reductions. Negotiations involving the proposed Free Trade Area of

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