Disaggregated production and the big drop in trade flows

by

Alan Beattie:

A host of economists have pointed at the disaggregation of supply chains as one of the key reasons. A combination of just-in-time logistics and the digitisation of information has helped fracture supply chains… But as Prof O’Rourke notes, this theory shows why trade volume is higher relative to output; it does not necessarily explain why it falls faster in percentage terms. He has another explanation based on outsourcing: that manufactured goods comprise a bigger proportion of trade today than in the 1930s, when basic commodities had a larger share. Commerce in manufactured goods is more volatile and subject to shifts in demand than commodities, and trade in turn becomes more variable.

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