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The authors thank Rudolph Bems, Carlos Caceres, Paul Cashin, Alexander Culiuc, Christian Ebeke, Sanaa Farid, SeokHyun Yoon, Kia Penso, Mehdi Raissi, Pedro Rodriguez, Natalia Tamirisa, Petia Topalova, Francis Vitek, and participants in the IMF Middle East and Central Asia Discussion Forum. Any errors remain our own.
Deficient bilateral data for services precludes analysis of the geographical composition of service exports. Nonetheless, there is reason to believe that a good portion of tourism comes from Europe, especially to the Maghreb.
For evaluating intraregional trade, it is arguably more appropriate to use smaller country groups. The consensus is that countries in the Middle East tend to trade too little with each other (Behar & Freund, 2011). It has also been argued that trade between countries in the Caucasus and Central Asia is low given its geographic characteristics (IMF, 2011; Babetskii, Babetskaia-Kukharchuk and Raiser, 2003).
The fall between September 2008 and January 2009 exceeded 15 percent before rebounding strongly, which was almost four times the corresponding fall in world GDP (Gregory and others, 2010).
Given that durables average approximately 10 percent of GDP, this is consistent with IMF (2010) in that the change in durables was approximately ten times the change in the rest of GDP.
From an econometric point of view, an advantage of this is to generate more variation across exporters in trading partner GDP than one would get from the variation in world GDP over time, which does not vary across most exporters because most exporters are small. An alternative approach to aggregation would be to weight trading partner GDP by exports to that country, but the use of distance avoids the inclusion of export variables on the right hand side and is theoretically closer to the gravity model of bilateral trade. The relevance of distance is long-established for goods trade in gravity models but recent work suggests this applies for services too (Anderson, Milot & Yotov, 2012). The use of distance also makes intuitive sense because, for aggregate exports, it matters whether the major shock to GDP is close to the exporter or far away. Gravity models offer multiple advantages but global bilateral services data are not easily available.
The shape of our panel (N≈150; T≈15) makes dynamic estimates susceptible to Nickell (1981) bias to the order of 5%. GMM-based estimates can address this source of bias but their asymptotic validity relies on N being large relative to T, so they should be interpreted with some caution. We also exploit the estimator’s ability to treat exporter GDP as endogenous or predetermined.
Recent estimates indicate elasticities of about 3.5, but can draw on as few as 6 observations and should be treated with caution as a result.
There is evidence that crisis episodes are associated with drops in trade even after controlling for drops in GDP (IMF, 2010).
However, evidence is mixed. See for example Levchenko, Lewis & Tesar (2009), where vertically integrated sectors had bigger falls and Altomonte & Ottaviano (2009), where global supply chains were resilient.
It is not feasible to do regressions only for oil exports with this type of data due to a lack of observations.
A few papers have attempted to estimate service trade elasticities, which tend to be high but are unsatisfactory for a number of reasons including problematic specification of trading partner GDP.
This would be especially the case if the region’s main trading partners tended to experience greater asymmetries in the subcomponents of demand, for example European changes in durables demand being a bigger multiple of changes in GDP than the rest of the world. However, we did not find this to be the case.
Trade exposures are based on all countries in the world, subject to data availability. GDP shocks to regions are approximated by shocks to GDP in a subset of countries in the IMF’s global macroeconomic models. In particular, Europe consists of Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal, Spain, and the United Kingdom. The BRICS are fully represented by Brazil, Russia, India, China, and South Africa. Asia is represented by Indonesia, Japan and Korea. Other countries are Argentina, Canada, Australia, Mexico and Turkey. No MCD countries are included here.
The effects are similar in the oil importers and oil exporters despite higher CCA oil importer exposures to Europe because of the large exposure of Kazakhstan, an oil exporter, to Europe and because Kazakhstan has a large PPP weight in the group.