The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Global merchandise trade expanded rapidly over the last 61/2 decades and its relationship
with global income has seen ebbs and flows. This paper examines the shifts in this
relationship using time series data over 1950-2014 and situates it in the current and
longer term context. The conjunctural context comes from, among other things, the 'great
trade collapse' (GTC) and the global financial crisis (GFC) in 2009, and developments
since then. The longer term context comes from the relative role of 'globalization' and
'technology' shocks in accounting for the short and long run variance of global exports
and income. The paper estimates trade and income elasticities using ADL models taking
account of structural breaks, and impulse response functions from structural VARs. The
estimated SVAR model provides a lens to ask whether global trade and income are in a
'new normal' or only 'back to (an old) normal' after the GTC and GFC.