Fragmentation in Global Trade: Accounting for Commodities
Fragmentationin GlobalTrade AccountingforCommodities MarijnA.Bolhuis,JiaqianChen,andBenjaminKett WP/23/73 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate. TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. 2023 MAR ©2023InternationalMonetaryFundWP/23/73 IMFWorkingPaper Strategy,Policy,&ReviewDepartment FragmentationinGlobalTrade:AccountingforCommodities*PreparedbyMarijnA.Bolhuis,JiaqianChen,andBenjaminKett AuthorizedfordistributionbyAnnaIlyinaMarch2023 IMFWorkingPapersdescriberesearchinprogressbytheauthor(s)andarepublishedtoelicitcommentsandtoencouragedebate.TheviewsexpressedinIMFWorkingPapersarethoseoftheauthor(s)anddonotnecessarilyrepresenttheviewsoftheIMF,itsExecutiveBoard,orIMFmanagement. ABSTRACT: Weconstructanewdatabasewhichcoversproductionandtradein136primarycommoditiesand24manufacturingandservicesectorsfor145countries.Usingthisnewmoregranulardata,weestimatespillovereffectsfromplausibletradefragmentationscenariosinanewmulti-country,multi-sector,general-equilibriummodelthataccountsforuniquedemandandsupplycharacteristicsofcommodities.Theresultsshowfragmentation-inducedoutputlossescanbesizable,especiallyforLow-Income-Countries,althoughthemagnitudesvaryaccordingtotheparticularscenariosandmodellingassumptions.Ourworkdemonstratesthatnotaccountingforgranularcommodityproductionandtradelinkagesleadstounderestimationoftheoutputlossesassociatedwithtradefragmentation. RECOMMENDEDCITATION:BolhuisA.Marijn,JiaqianChenandBenjaminKett(2023):FragmentationinGlobalTrade:AccountingforCommodities.IMFWorkingPaper,No.WP23/73 JELClassificationNumbers: F11,F12,F14,F15,F17,F41,F42,F43,Q17,Q27,Q37,Q43 Keywords: Commodities;internationaltrade;sanctions;spillovers;fragmentation Author’sE-MailAddress: mbolhuis@imf.org,jchen@imf.org,bkett@imf.org *Theauthor(s)wouldliketothankShekharAiyar,JorgeAlvarez,ChikakoBaba,MehdiBenatiyaAndaloussi,WenjieChen,StephanDanninger,RomainDuval,ChristianEbeke,LucEyraud,Pierre-OlivierGourinchas,NikolayGueorguiev,AnnaIlyina,PetyaKoeva WORKINGPAPERS FragmentationinGlobalTrade AccountingforCommodities PreparedbyMarijnA.Bolhuis,JiaqianChen,BenjaminKett Contents 1.Introduction5 2.Data8 Productionandtradedata8 Tradeelasticities(shortvs.longrun)9 Demandelasticities10 3.ModellingFramework11 Model11 Assessingthecostsoffragmentation12 4.Geo-EconomicFragmentationScenarios14 5.Results16 MainResults16 Robustnesschecks20 TradeElasticities20 Inter-blocaggregateimbalances21 6.Conclusion24 References25 AnnexI.Data28 Commoditylist28 TradeElasticities29 AnnexII.Modellingframeworkdetails30 FullModel30 Equilibriumusingexacthatalgebra.34 1.Introduction Followingseveraldecadesofasteadyincreaseinglobaleconomicintegration,globalizationhasstalledandmaybeonthebrinkofareversal.TheshallowanduneveneconomicrecoveryfromtheGlobalFinancialCrisis(GFC)coincidedwithagrowingnumberofmilitaryconflictsaroundtheworld,adeepeningskepticismaboutthebenefitsofglobalization,andagrowingpopulismandprotectionism(e.g.,Brexit,tradewarbetweentheUnitedStatesandChina).TheCOVID-19pandemichasfurthertestedinternationalrelations.ThewarinUkraineservedtosplitcountriesalonggeopoliticallines,furtherincreasinguncertaintyoverthedirectionofglobalization.Aiyarandothers(2023)documentsthesedevelopmentsandcoinstheterm“geoeconomicfragmentation”(GEF)todescribeapolicy-drivenreversalofglobaleconomicintegrationoftenguidedbystrategicconsiderations. MotivatedbytherisingspecterofGEF,agrowingnumberofstudieshaveattemptedtogaugethepotentialeconomiceffectsofpossiblefragmentationscenarios(Aiyarandothers,2023).Thispaperaimstoquantifytheeconomiccostsoffragmentationfromaninternationaltradeperspective,withaparticularfocusonproductionandtradeofcommodities.Morespecifically,weexaminehowvariousfragmentationscenariosaffectoutputindifferentcountrygroupsbyapplyinganovelmulti-countrymulti-sectormodelwithinput-outputlinkagestoanewlydevelopeddatasetthataccountsforgranularproductionandtradeincommodities. Toeffectivelyaccountforspilloversfromtradefragmentation,weconstructanewdatasetthatcoversagranularleveloftradeandproductionincommoditiesfollowingFallyandSayre(2019,FShereafter).FSusedetaileddataonproductionandtradefromvarioussourcestoconstructarichdatasetcoveringtrade,production,andpricesacrossarangeofcommodities.Ourdatasetextendstheirworkalongseveraldimensions:(i)weupdatethedatato2019,themostrecentpre-pandemicyear,from2016inFS;(ii)wemodifythelistofcommoditiesinordertoreflectthemost“upstream”products,whichisimportanttoensurethecharacteristicsofcommodities(suchasgeographicalconcentration)areappropriatelycaptured;and(iii)wereconcileourdatasetwithanotherwisestandardinput-output(IO)matrixsuchthattheindividualcommoditiessumuptoanaggregatesectorintheEora26database(Lenzenetal.,2012,2013).Overall,ourdatabasecontains136primarycommoditiesalongwith24manufacturingandservicesectorsfor145countries. Exploitingthedetailofthisdatasetrequiresanadaptedmodelwhichincorpo
